Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 1 Economics: oundations and Mode!

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1) The study of economics arises due to: A) money. B) scarcity. C) greed. D) resources. 2) Scarcity: A) is due to unlimited wants and limited resources. B) is not a pro lem for the wealthy. C) is only a pro lem when a country has too large a population. D) all of the a o!e. ") The asic economic pro lem of scarcity: A) has always e#isted and will continue to e#ist. B) will e!entually disappear as technology continues to ad!ance. C)

is a pro lem only in de!eloping economies. D) does not create any pro lems for the wealthy in society. $) %conomics is the study of: A) how to ma&e money in the stoc& mar&et. B) how to ma&e money in a mar&et economy. C) the choices people ma&e to attain their goals' gi!en their scarce resources. D) supply and demand. () %conomists assume that: A) humans eha!e randomly. B) humans are greedy and selfish. C) humans prefer to li!e in a society that !alues fairness a o!e all else. D) humans are rational and respond to incenti!es. )) *eople ma&e optimal decisions: A) according to their whims and emotions at the moment. B) in consistently irrational ways. C)

at the margin. D) randomly. +) ,f the marginal costs of a T- are .2//' the firm should produce and sell this T-: A) when marginal enefits are rising a o!e .2//. B) until marginal enefits 0ust e1ual .2//. C) until marginal costs start rising. D) until marginal enefits reach 2ero. 3) 4hich of the following is an e#ample of people or firms responding to incenti!es5 A) Car owners purchasing more gasoline from a gas station that sells gasoline at ten cents a gallon lower than does a ri!al. B) Ban&s not ta&ing steps to increase security when it is less costly to allow some an& ro costly security. C) 6irms producing more of a D-D that cost less than each one can e sold for. D) All of these are e#amples of people or firms responding to incenti!es. 7) 4hat does the ad0ecti!e 8marginal8 mean in economics5 A) The edge of a mar&et B) eries than to install more

Additional or e#tra C) ,llegal D) Secondary 1/) 4hich of the following does economics promote as the way to ma&e the est decision5 A) Continue an en0oya le acti!ity until you get tired of it. B) Continue an en0oya le acti!ity until it is no longer en0oya le. C) Continue an en0oya le acti!ity until you cannot afford anymore of it. D) Continue an en0oya le acti!ity to where it marginal enefit e1uals its marginal cost. 11) 9arginal analysis in!ol!es: A) doing an acti!ity until marginal costs start declining. B) doing an acti!ity only when marginal enefits are positi!e. C) doing an acti!ity until marginal enefits e1ual marginal costs. D) doing an acti!ity only if marginal costs are greater than marginal enefits. 12) %!ery society faces economic tradeoffs' which means: A) some people li!e etter than others do. B)

not e!eryone can ha!e enough goods to sur!i!e. C) producing more of one good means less of another good can e produced. D) not e!eryone enefits from the economy. 1") 4hat forces humans to ma&e tradeoffs5 A) Scarcity B) Confusion C) :is& D) *roducti!e inefficiency 1$) The decision a out what goods and ser!ices will e produced made in a mar&et economy is made y: A) lawma&ers in the go!ernment !oting on what will e produced. B) producing firms deciding to produce only what the oss says must e produced. C) cele rities deciding what society needs the most. D) consumers and firms choosing which goods and ser!ices to uy or produce. 1() 4hich of the following is correct a out the economic decisions consumers' firms' and the go!ernment ha!e to ma&e5 A)

%ach faces a different type of economic decision. B) ;nly indi!iduals face scarcity' firms and the go!ernment do not. C) 6irms and the go!ernment face scarcity' indi!iduals do not. D) %ach faces the pro lem of scarcity of trading one good for another. 1)) 4hich of the following is correct5 A) Anytime you ha!e to decide which action to ta&e you are facing an economic tradeoff. B) %conomics is a social science that studies the tradeoffs we are forced to ma&e ecause of scarcity. C) %!ery indi!idual' no matter how rich or poor' is faced with ma&ing tradeoffs. D) All of these are correct. 1+) 4ho recei!es the most of what is produced in a mar&et economy5 A) <awma&ers and other politically fa!ored groups B) Those willing and a le to uy them C) %!eryone recei!es an e1ual amount D) *eople who earn the highest incomes 13) The go!ernment ma&es all economic decisions in a: A)

mar&et economy. B) mi#ed economy. C) centrally planned economy. D) free economy. 17) 4hich of the following is a pro lem inherent in centrally planned economies5 A) There are no pro lems and e!eryone' including consumers' is satisfied. B) There is too much production of low=cost' high=1uality goods and ser!ices. C) *roduction managers do not satisfy consumer wants ut the go!ernment>s orders. D) ?nemployment is too high. 2/) 4ho ultimately decides what goods and ser!ices will e produced in a mar&et economy5 A) *roducing firms B) The ruling political party C) Consumers D) 4or&ers 21) 4hich of the following is an attracti!e feature of a mar&et economy5 A)

@ard wor& is rewarded. B) Standards of li!ing of e!eryone are e1ual. C) <uc& has nothing to do with indi!idual success. D) Ao!ernment decides what is produced. 22) 4hat e#plains the efficiency of mar&ets5 A) The go!ernment staying out of the mar&etplace. B) 9ar&ets always result in e1uity. C) 9ar&ets promote e1ual standards of li!ing. D) 9ar&ets promote competition and !oluntary e#change. 2") -oluntary e#change increases economic efficiency: A) ecause neither the uyer nor the seller would agree to a trade unless they oth enefit. B) ecause !oluntary e#change only ta&es place with go!ernment permission. C) ecause it is free and conse1uently does not cost anything. D) ecause the true economic !alue of the good or ser!ice is esta lished. 2$) 4hich of the following forces producti!e efficiency5

A) Competition among sellers B) Competition among uyers C) Ao!ernment inspectors D) Ao!ernment production rules and regulations 2() 4hat generates allocati!e efficiency in a mar&et economy5 A) Bational go!ernment inter!ention B) -oluntary e#change etween uyers and sellers C) ?nited Bations rules for competition D) %1uity 2)) 4hich of the following is a result of a mar&et economy5 A) %n!ironmental protection B) An e1ual income distri ution C) Agreement on e1uity D) -oluntary e#change 2+)

4hat is e1uity in economic affairs5 A) %!eryone has an e1ual standard of li!ing. B) The hardest wor&ing indi!iduals consume all they want. C) ;nly elected officials ha!e high standards of li!ing. D) %conomic enefits are distri uted fairly. 23) Among the things economic models do is: A) answer economic 1uestions. B) simplify some aspect of economic life. C) ma&e economic ideas e#plicit and concrete for use y decision ma&ers. D) all of the a o!e. 27) 4hich of the following is a microeconomics 1uestion5 A) @ow much will e sa!ed and how much will e produced in the entire economy5 B) 4hat will the le!el of economic growth e in the entire economy5 C) 4hat factors determine the price of carrots5 D) 4hat determines the a!erage price le!el and inflation5

"/) 4hich of the following is a macroeconomics 1uestion5 A) 4hat determines the inflation rate5 B) 4hat determines the production of D-Ds. C) 4hat factors determine the price of carrots5 D) 4hat determines the wage of auto wor&er5 "1) ;pportunity cost is: A) the enefit of an acti!ity. B) the cost of an acti!ity. C) the lowest !alued alternati!e that must e gi!en up to engage in an acti!ity. D) the highest !alued alternati!e that must e gi!en up to engage in an acti!ity. "2) @uman capital is: A) the money people ha!e. B) the machines wor&ers ha!e to wor& with. C) the accumulated s&ills and training wor&ers ha!e. D)

the wealth people ha!e. "") Capital is: A) the money people ha!e. B) the machines wor&ers ha!e to wor& with. C) the accumulated s&ills and training wor&ers ha!e. D) the wealth people ha!e. "$) 4hy are so many graphs used in economics5 A) Araphs illustrate and simplify economic ideas. B) Complications can e cut through 1uic&ly and easily. C) Araphs highlight &ey economic relationships. D) All of these reasons are why so many graphs are used in economics. "() ,f a graph has a line that shows the amount of outsourcing in the last ten years' it is &nown as a: A) pie chart. B) time series graph. C) demand cur!e for outsourcing. D)

supply cur!e of outsourcing. ")) Two=dimensional graphs ha!e a hori2ontal and a !ertical a#is and are used in economics to illustrate: A) relationships etween two economic !aria les. B) one !aria le. C) a time series. D) a pie chart. "+) ,f a straight line passes through the point # C 1$ and y C " and also through the point # C $ and y C 1/' the slope of this line is: A) negati!e 11 di!ided y ). B) se!en tenths. C) negati!e se!en tenths. D) ) di!ided y 11. "3) @ow can the influence of a third !aria le e shown on a two=dimensional graph5 A) By allowing the the relationship to e nonlinear. B) By allowing the position of the relationship line or cur!e to shift on the graph. C)

By drawing a third a#is coming out of the two a#es. D) Bone of the a o!e. "7) The relationship etween caloric inta&e and pounds lost is: A) in!erse. B) direct. C) independent. D) positi!e. $/) ,f the price of gasoline was .1.2( a gallon and it is now .2.2( a gallon' what was the percentage change in price5 A) $.$ percent B) 3 percent C) $$ percent D) 3/ percent

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter " Trade-o##s$ Comparati%e &d%anta'e$ and the Market ()stem
1) Scarcity: A) re1uires tradeoffs. B) is due to limited wants. C) is due to unlimited resources. D) all of the a o!e. 2) An e#ample of a factor of production would e: A) a car produced y an auto manufacturer. B) a wor&er hired y an auto manufacturer. C) money orrowed y an auto manufacturer. D) all of the a o!e. ") The production possi ilities frontier shows: A) the !arious products that can e produced now and in the future. B) attaina le com inations of two products that may e produced in a particular time period with a!aila le resources. C)

what an e1uita le distri ution of products among citi2ens would e. D) what people want to ha!e produced in a particular time period. $) The attaina le production points on a production possi ility cur!e are: A) the hori2ontal and !ertical intercepts. B) the points along the production possi ilities frontier. C) the points outside the area enclosed y the production possi ilities frontier. D) the points along and inside the production possi ility frontier. () The unattaina le points !is=a=!is a production possi ilities frontier are: A) the points within the production possi ilities frontier. B) the points along the production possi ilities frontier. C) the points of the hori2ontal and !ertical intercepts. D) the points outside the production possi ilities frontier. *e#er to i'ure "+1 #or the ,uestions be!o-+

6igure 2.1 )) ,n figure 2.1' point A: A) is technically efficient. B) is unattaina le with current resources. C) is inefficient implying not all resources are eing used. D) is the e1uili rium. +) ,n figure 2.1' point B: A) is technically efficient. B) is unattaina le with current resources. C) is inefficient implying not all resources are eing used. D)

is the e1uili rium. 3) ,n figure 2.1' point C: A) is technically efficient. B) is unattaina le with current resources. C) is inefficient implying not all resources are eing used. D) is the e1uili rium. 7) ;n a production possi ilities frontier' a com ination of output that is inside the frontier is: A) allocati!ely efficient. B) producti!ely efficient C) allocati!ely inefficient. D) producti!ely inefficient. 1/) Assumed with a production possi ilities frontier is that: A) only two products are produced. B) resource supplies are fi#ed. C) technology is fi#ed. D)

all of the a o!e. 11) The term that means the highest !alued alternati!e gi!en up when a person chooses to engage in an acti!ity is: A) accounting cost. B) dollar cost. C) opportunity cost. D) e#plicit cost. 12) ,f a firm can produce a com ination of )/ units of D together with 3/ units of E if it produces +/ units of D' the firm can only produce )/ units of E' thus the opportunity cost to produce 1/ more units of D is: A) 2/ units of E. B) 1/ units of D. C) two units of E. D) one=half a unit of D. 1") ,ncreasing opportunity cost along a owed out production possi ilities frontier occurs ecause: A) of inefficient production. B) of ineffecti!e management y entrepreneurs. C) some factors of production are not e1ually suited to producing oth goods or ser!ices. D)

of the scarcity of factors of production. 1$) The slope or rate of change along a production possi ilities frontier: A) has no economic rele!ance or meaning. B) is always constant. C) is always !arying. D) measures the opportunity cost of producing one more unit of a good. 1() At full employment' an economy that wants to produce more war goods: A) must wait until resource supplies ha!e increased. B) must increase the production of consumer goods. C) must cut ac& on the production of other goods. D) must e attempting the impossi le. 1)) A production situation with constant opportunity cost would e graphed as : A) a negati!ely sloped cur!e owed out from the origin. B) a positi!ely sloped straight line. C) a negati!ely sloped cur!e owed in toward the origin.

D) a negati!ely sloped straight line. 1+) *roduction possi ilities frontier model shows that: A) if consumers decide to uy more of a product its price will increase. B) a mar&et economy is more efficient in producing goods and ser!ices than is a centrally planned economy. C) economic growth can only e achie!ed y free mar&et economies. D) if all resources are fully and efficiently utili2ed' more output of good D can only e achie!ed y producing less of another good. 13) ,f a nation>s production possi ilities frontier mo!es outward' this represents: A) economic growth. B) rising prices of the two goods on the production possi ilities frontier model. C) an impossi le situation. D) a change in producing one good in fa!or of the other. 17) %conomic growth represented is on a production possi ilities frontier model y the production possi ility frontier: A) shifting outward. B) shifting inward. C)

ecoming steeper. D) ecoming flatter. 2/) 4ithout an increase in the supplies of factors of production' how can a nation grow economically5 A) ,t cannot B) Through technological ad!ance which ena les more output with the same resource supplies C) By lowering the price of factors of production D) By increasing the price of factors of production 21) *eople trade with each other ecause: A) y speciali2ing in one acti!ity people can increase production. B) people who speciali2e must trade with others for what they want to consume. C) speciali2ation y indi!idual people implies trade y e!eryone. D) of all of these reasons. 22) Eou ha!e an a solute ad!antage whene!er you: A) are etter educated than someone else. B) can produce more of something than others with the same resources.

C) prefer to do one particular acti!ity. D) can produce something at a lower opportunity cost than others. 2") ,f Aeorge can mow 1/ lawns or culti!ate ( gardens a day while Fac& can mow ) lawns or culti!ate $ gardens a day' then: A) Fac& has an a solute ad!antage in oth lawn mowing and garden culti!ating. B) Aeorge has an a solute ad!antage in oth lawn mowing and garden culti!ating. C) Fac& has an a solute ad!antage in lawn mowing. D) Fac& has an a solute ad!antage in garden culti!ating. 2$) ,f Aeorge can mow 1/ lawns or culti!ate ( gardens a day while Fac& can mow ) lawns or culti!ate $ gardens a day' then: A) Fac& has a comparati!e ad!antage in garden culti!ating. B) Aeorge has an a solute ad!antage in oth lawn mowing and garden culti!ating. C) Aeorge has a comparati!e ad!antage in lawn mowing. D) All of the a o!e are correct. 2() ,f Aeorge can mow 1/ lawns or culti!ate ( gardens a day while Fac& can mow ) lawns or culti!ate $ gardens a day' then Fac&>s opportunity cost of mowing a lawn is: A)

half a garden culti!ated. B) two lawns mowed. C) two=thirds of a garden culti!ated. D) one and a half lawns mowed. 2)) Comparati!e ad!antage means: A) a producing unit can produce more of a good or ser!ice with the same amount of resources than any other producing unit. B) a producing unit can produce a good or ser!ice at a lower opportunity cost than any other producing unit. C) compared to anyone else' you are etter at what you do. D) none of the a o!e. 2+) ,ndi!iduals who ha!e ne!er een the est at doing anything: A) will ne!er e a le to earn a decent income. B) can still ha!e a comparati!e ad!antage in producing some good or ser!ice. C) can only e employed at simple 0o s. D) will ha!e to e supported y the go!ernment. 23) @ouseholds: A)

ha!e no influence on the circular flow in a mar&et economy. B) purchase resources in the factor mar&et. C) sell goods in the product mar&et. D) sell resources in the factor mar&et. 27) Among the characteristics of the circular flow in a mar&et economy is: A) firms sell goods and ser!ices in the product mar&et. B) households spend earnings from resource sales on goods and ser!ices in the product mar&et. C) firms hire resources sold y households in the factor mar&et. D) all of these are characteristic of the circular flow in a mar&et economy. "/) 4hich of the following is correct a out a simple circular flow model5 A) *roducers are neither uyers nor sellers in the product mar&et. B) @ouseholds are sellers in the product mar&et. C) *roducers are uyers in the factors mar&et. D) Bone of these are correct. "1) An ,n1uiry into the Bature and Causes of the 4ealth of Bations pu lished in 1++) was written y5

A) Fohn 9aynard Geynes B) Garl 9ar# C) Alfred 9arshall D) Adam Smith "2) Adam Smith>s eha!ioral assumption a out humans was that: A) people typically act irrationally. B) people usually act in a rational' self=interested way. C) people are consistently greedy. D) people typically act randomly. "") Smith>s in!isi le hand is the: A) go!ernment>s o!ersight to control the economy. B) property ownership laws and the rule of the court system. C) indi!iduals acting in their own self=interest. D) real world laws of economics that are unseen. "$)

The economic impact of Smith>s in!isi le hand is: A) chaos in a mar&et not controlled y the go!ernment. B) some people are a le to ta&e ad!antage of others and earn large incomes. C) the mar&et pro!ides consumers with what they want. D) producers can secretly and together and decide what to produce. "() The fundamental thing the go!ernment must do to facilitate the operation of a mar&et economy is: A) produce goods to pro!ide for low income households. B) set up and enforce pri!ate property rights. C) ensure an e1ual distri ution of income to all citi2ens. D) all of the a o!e. ")) *ri!ate property rights pro!ide that: A) an arrested indi!idual has a right to a lawyer to represent them. B) the go!ernment can redistri ute income. C) the go!ernment cannot put you in a prison without a trial y 0ury. D) a resource can used in production or sold y its legal owner.

"+) The ultimate purpose of patents and copyrights is to: A) pro!ide owners with large profit fore!er. B) protect firms from eing ta&en ad!antage of y competing firms. C) protect domestic firms from foreign competition. D) encourage the e#penditure of funds on research and de!elopment to create new products. "3) A successful mar&et economy re1uires well defined property rights and: A) alanced supplies of all factors of production. B) an independent court system and 0udges ma&ing impartial decisions on the asis of law. C) detailed go!ernment regulations. D) all of the a o!e. "7) The Areat Depression of the 17"/s with a large num er of wor&ers and factories unemployed would e represented in production possi ilities frontier graph y: A) a point inside the frontier. B) a point outside the frontier. C) a point on the frontier. D)

an intercept on either the !ertical or hori2ontal a#is. $/) ,f the est lawyer in town is also the est at operating a word processor' then this person should: A) split their time e!enly etween eing a lawyer and a word processor. B) speciali2e in eing a lawyer ecause its opportunity cost is lower. C) flip a coin' there is no clear choice etween the two careers. D) speciali2e in eing a wor& processor ecause it is a 0o that uses modern technology.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter . /here 0rices Come rom: The 1nteraction o# 2emand and (upp!)
1) Demand shows: A) the 1uantity of a good that uyers will uy at a gi!en price. B) the 1uantities of a good that uyers will uy at all possi le prices. C) the 1uantity of a good that sellers will sell at a gi!en price. D) the 1uantities of a good that sellers will sell at all possi le prices. 2) 4hen the price of a good increases: A) the demand for the good will decrease. B) the demand for the good will increase. C)

the 1uantity demanded of the good will decrease. D) the 1uantity demanded of the good will increase. ") 4hen the price of a CD decreases: A) the demand for CDs will decrease. B) the demand for CDs will increase. C) the 1uantity demanded of CDs will decrease. D) the 1uantity demanded of CDs will increase. $) The law of demand states that holding e!erything else constant: A) uyers increase the 1uantities they uy when their incomes increase. B) there is a positi!e or up sloping relationship etween price and 1uantity. C) uyers decrease the amount of a good ought when there is more in the mar&et. D) there is an in!erse or down sloping relationship etween price and 1uantity. () The su stitution effect results in: A) sellers su stituting less e#pensi!e inputs in production. B) uyers uying more of a good ecause their purchasing power has increased.

C) sellers producing products when input prices fall. D) uyers uying more of a relati!ely cheaper good. )) The income effect occurs when: A) uyers uy more of a good ecause their purchasing power has increased. B) uyers uy more of a relati!ely cheaper good. C) sellers produce more output ecause their profit has increased. D) sellers hire more wor&ers ecause uyers incomes ha!e increased. +) ,f we &now the indi!idual demands of all uyers in a mar&et' we can find mar&et demand y: A) multiplying all the indi!idual prices y the indi!idual 1uantity demanded. B) adding all indi!idual prices uyers will pay for each 1uantity. C) adding all indi!idual 1uantities uyers will uy for each price. D) o ser!ing how much is sold in the mar&et at the current price. 3) 4hich of the following is not held constant along a demand schedule or cur!e5 A) The uyer>s tastes and preferences B)

The uyer>s incomes C) The price of the product D) The uyer>s e#pectations a out future prices 7) ,f the price of a product increases from .12 to .1(: A) the demand for the product will decrease. B) the demand for the product will increase. C) the 1uantity demanded for the product will decrease. D) the 1uantity demanded for the product will increase. 1/) The phrase ceteris pari us means: A) after this' efore that. B) sei2e the day. C) all else e1ual. D) uyer eware. 11) An increase in the demand for ananas will B;T e caused y: A) a rise in the price of apples. B)

news that ananas help relie!e stress in people. C) a drop in the mar&et price of ananas. D) uyers switching to a more healthy diet. 12) 4hich of the following pairs of goods would e an e#ample of su stitutes5 A) Aasoline and automo iles B) Automo iles and motorcycles C) Coo&ing oil and golf alls D) Computers and printers 1") 4hat would e#plain the price of gasoline eing much higher in 2//( than it was in 2//$' yet roughly the same amount of gasoline was ought in oth years5 A) The demand for gasoline does not follow the law of demand. B) The supply of gasoline stayed constant in 2//$ and 2//(. C) The demand for gasoline increased from 2//$ to 2//(. D) The demand for gasoline decreased from 2//$ to 2//(. 1$) ,f last year the A0a# firm sold 2(/ sofas at .1'/// each and this year A0a# sold (// sofas at .1'(// each' then A)

A0a# increased the supply of sofas. B) the demand for sofas is up sloping. C) the demand for sofas increased. D) the 1uantity demanded has increased. 1() The demand for ig screen T-s would fall' if ig screen T-s are normal goods and: A) the mar&et price of ig screen tele!ision sets increases. B) there is a larger output of ig screen T-s. C) uyer>s of ig screen T-s incomes fall ecause of a recession. D) the mar&et price of D-Ds falls. 1)) Bormal goods are one that uyers uy: A) less of when their incomes decrease. B) during normal times. C) more of when their incomes decrease. D) a lot of throughout the year. 1+) ,nferior goods are: A)

su standard. B) goods whose purchase is in!ersely related to consumer income C) goods whose purchase is directly related to consumer income. D) goods that do not wor&. 13) The law of demand e#ists ecause when price changes: A) the su stitution and income effects wor& together to change 1uantity demanded. B) demand changes. C) supply changes. D) all of the a o!e. 17) ,f tires and gasoline are compliments' then: A) an increase in the price of gasoline will reduce the consumption of tires. B) an increase in the price of gasoline will increase the consumption of tires. C) tires and gasoline consumption are unrelated. D) an increase in the price of tires will increase the consumption of gasoline. 2/) 4hen something is fashiona le' economists would say that demand would increase ecause: A)

consumer incomes ha!e increased. B) consumer tastes and preferences ha!e turned fa!ora ly towards that product. C) the price of the product has increased. D) e#pectations of the future price has increased. 21) As the a!erage age of the population of the ?nited States gets older' the demand for: A) children>s toys will increase. B) health care will increase. C) retirement homes will decrease. D) motorcycles will increase. 22) A change in demand represents a HHHHHHHH while a change in 1uantity demanded is a HHHHHHHH. A) mo!ement along one demand cur!eI shift to a new demand cur!e B) shift to a new demand cur!eI mo!ement along one demand cur!e C) mo!ement along one demand cur!eI mo!ement along another demand cur!e D) shift to a new demand cur!eI shift to a another new demand cur!e 2") 4hat would happen in the red apple mar&et if the price of golden apples decreases5

A) Bothing' they are separate and unrelated commodities. B) The 1uantity demanded of red apples would increase. C) The demand for red apples would increase. D) The demand for red apples would fall. 2$) ,f the demand for a good increases when there is high unemployment' we can conclude that the commodity is: A) a normal good. B) an inferior good. C) a good for which the law of demand does not apply. D) a lu#ury good. 2() ,f the demand for good D increases' when the price of good E decreases' then: A) goods D and E are inferior goods. B) goods D and E are complement. C) goods D and E are su stitutes. D) goods D and E are normal goods. 2))

,f the demand for good D decreases' when the price of good E decreases' then: A) goods D and E are inferior goods. B) goods D and E are complements. C) goods D and E are su stitutes. D) goods D and E are normal goods. 2+) ,f the cost of producing a product increases' then: A) the 1uantity demanded will increase. B) the 1uantity supplied will increase. C) the supply of the product will decrease. D) the demand for the product will decrease. 23) The law of supply implies that: A) there is a positi!e or direct relationship etween price and 1uantity supplied. B) the supply cur!e slopes upward. C) as the price of the product increases' the 1uantity supplied increases. D) all of these correctly state the law of supply.

27) An ad!ance in technology increases supply: A) ecause new technology is so e#pensi!e. B) ecause la or>s or capital>s producti!ity increases and costs of production fall. C) ecause uyers are willing to uy more of a product produced with the latest technology. D) all of the a o!e. "/) As more firms produce a product: A) mar&et supply increases. B) mar&et price increases. C) mar&et demand increases. D) production costs must increase. "1) ,f the price of a product increases' then: A) mar&et supply will increase. B) mar&et supply will decrease. C) 1uantity supplied will increase. D)

1uantity demanded will increase. "2) ,f the price of S?-s falls' then: A) the supply of automo iles will fall. B) the supply of automo iles will rise. C) the 1uantity supplied of automo iles will fall. D) the 1uantity supplied of automo iles will rise. "") ,f the e#pected future price of an automo ile rises' then: A) the supply of automo iles will fall. B) the supply of automo iles will rise. C) the 1uantity supplied of automo iles will fall. D) the 1uantity supplied of automo iles will rise. "$) At the mar&et e1uili rium' A) 1uantity demanded is greater than 1uantity supplied. B) 1uantity supplied is greater than 1uantity demanded. C) 1uantity demanded is e1ual to 1uantity supplied. D)

1uantity supplied determines what 1uantity supplied will e. "() The e#istence of a surplus in a mar&et will cause: A) mar&et price to rise and 1uantity supplied to decrease. B) mar&et price to fall and 1uantity supplied to decrease. C) mar&et price to rise and 1uantity supplied to increase. D) mar&et price to fall and 1uantity supplied to increase. ")) The e#istence of a shortage in a mar&et will cause: A) mar&et price to rise and 1uantity demanded to decrease. B) mar&et price to fall and 1uantity demanded to decrease. C) mar&et price to rise and 1uantity demanded to increase. D) mar&et price to fall and 1uantity demanded to increase. "+) A shortage in a mar&et means: A) 1uantity demand is greater than 1uantity supplied. B) 1uantity supplied is greater than 1uantity demanded. C) demand is greater than supply. D)

supply is greater than demand. "3) A firm tries to increase the demand for the product it sells y: A) lowering its price. B) con!incing uyers that the price will e lower in the future. C) ad!ertising the product to change uyers tastes in fa!or of the product. D) using the latest technology to produce the product. *e#er to i'ure .+1 #or the ,uestions be!o-+

6igure ".1 "7) ,n figure ".1' if demand increases' then e1uili rium: A) price and 1uantity rise. B) price and 1uantity fall. C)

price rises and 1uantity falls. D) price falls and 1uantity rises. $/) ,n figure ".1' if supply increases' then e1uili rium: A) price and 1uantity rise. B) price and 1uantity fall. C) price rises and 1uantity falls. D) price falls and 1uantity rises. $1) ,n figure ".1' if demand and supply decrease' then e1uili rium: A) price rises. B) price falls. C) 1uantity falls. D) 1uantity rises. $2) *rice in a competiti!e mar&et is determined y: A) sellers unilaterally. B) uyers unilaterally. C)

an interaction of demand and supply. D) go!ernment. $") ,f there is a surplus in a mar&et' then the mar&et is rought ac& into e1uili rium y: A) price falling. B) 1uantity demanded rising. C) 1uantity supplied falling. D) all of the a o!e. $$) ,f a mar&et has a shortage' then it will e rought ac& into e1uili rium y: A) price falling. B) 1uantity demanded rising. C) 1uantity supplied rising. D) all of the a o!e. $() 4hich of the following descri es what occurs at a mar&et e1uili rium5 A) %!eryone who wants to uy at the current price can do so. B) %!ery seller who is willing to sell at the current price can do so. C)

The mar&et is cleared' there is no surplus and no shortage. D) All these correctly descri e what happens at a mar&et e1uili rium. $)) ,f the price of plywood suddenly increases' which of the following would e a li&ely e#planation5 A) Demand for construction materials has increased ecause of a hurricane. B) Supply of plywood has increased ecause of more competition in the wood products industry. C) Demand has decreased ecause of the higher price. D) *eople are eha!ing irrationally. $+) ,f auto wor&ers> wages rise' then the: A) mar&et demand for automo iles would increase ecause uyer incomes would e higher. B) mar&et demand for automo iles would decrease ecause the price of automo iles would e higher. C) mar&et supply of automo iles would increase ecause the price of automo iles would e higher. D) mar&et supply of automo iles would decrease ecause costs of production would e higher. $3) Shortly after the price of eef increases' the price of chic&en increases also ecause: A) uyers are irrational. B) sellers are ta&ing ad!antage of consumers.

C) the goods are su stitutes and the higher price of eef increases demand for chic&en. D) the goods are complements and the higher price of eef increases demand for chic&en. $7) As the population increases: A) demand for all goods will increase. B) supply of all goods will increase. C) the 1uantity demanded of all goods will increase. D) price of all goods will decrease.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 3 Economic E##icienc)$ 4o%ernment 0rice (ettin'$ and Ta5es
1) ,f the current mar&et price for a particular oo& is ."/ a unit and a price ceiling is imposed at .2/ per oo&' then: A) a price of .2/ per oo& is the legally allowed ma#imum price of the oo&. B) there will an increase in the 1uantity demanded of the oo&. C) a shortage of the oo& will de!elop at the ceiling price. D) all of these are correct. 2) ,f the current mar&et price of eer is .1/ per si# pac& and a price floor of .12 per si# pac& is imposed' then: A)

.12 per si# pac& is the ma#imum legal price that can e charged. B) 1uantity demand of eer will rise. C) there will e a surplus of eer in the mar&et at the price floor. D) all of the a o!e. ") Since a consumer>s demand cur!e shows the ma#imum price a consumer will pay for each unit of the good' it also shows the consumer>s: A) total enefit. B) a!erage enefit. C) marginal enefit. D) per capita enefit. $) 9arginal enefit is: A) the satisfaction from consuming a gi!en amount of a good. B) the additional satisfaction from consuming one more of a good. C) the satisfaction from consuming a gi!en amount of a good di!ided y the num er of goods consumed. D) the satisfaction from producing one more unit of a good. () ,f you would ha!e een willing to pay .1/ for a pi22a and you only had to pay .3' what does the difference etween

.1/ and .3 represent5 A) 9arginal enefit B) A!erage enefit C) Total enefit D) Consumer surplus )) Consumer surplus is e1ual to: A) total area under the demand cur!e. B) total area under the demand cur!e down to the mar&et price. C) the !ertical distance from the demand cur!e down to the hori2ontal a#is. D) the area from the demand cur!e to the supply cur!e less than the e1uili rium 1uantity. +) The cost of producing one more unit of a good is: A) total cost. B) a!erage cost. C) marginal cost. D) impossi le to find. 3)

The supply cur!e of a producer shows: A) the total profit the producer earns. B) the total cost of producing the good. C) the a!erage cost of producing the good. D) the marginal cost of producing the good. 7) The minimum price a firm will sell a unit of output for is e1ual to: A) total cost of production. B) a!erage cost of production. C) marginal cost of production. D) none of these. 1/) ,f a producer is willing to sell a unit of output at .1( and the mar&et price is .2/' the .( difference is: A) total profit. B) a!erage profit. C) producer surplus. D) consumer surplus.

11) Total producer surplus in a mar&et is e1ual to the: A) selling price times the num er of units sold. B) area underneath the demand cur!e to the num er of units sold. C) area etween the demand cur!e and the mar&et supply cur!e. D) area etween the mar&et price and the mar&et supply cur!e. 12) Consumer surplus can e defined as: A) net enefit to consumers from participating in the mar&et. B) marginal enefit to consumers from participating in the mar&et. C) a!erage enefit to consumers from participating in the mar&et. D) total enefit to consumers from participating in the mar&et. 1") %conomic efficiency is achie!ed when: A) total enefits recei!ed are e1ual to total costs. B) marginal enefits recei!ed are e1ual to marginal costs C) a!erage enefits recei!ed are e1ual to a!erage costs. D)

partial enefits recei!ed e1ual to partial costs. 1$) ,f e#tra enefit in a mar&et e1uals .2."/ while e#tra cost e1uals .2."/' then economic efficiency: A) has een achie!ed. B) has not een achie!edI less needs to e produced. C) has not een achie!edI more needs to e produced. D) cannot e achie!ed. 1() %conomic surplus is e1ual to: A) consumers surplus minus producers surplus. B) consumers surplus plus producers surplus. C) consumers surplus times producers surplus. D) consumers surplus di!ided y producers surplus. 1)) 4hen the mar&et price is artificially &ept too high' then: A) economic surplus is increased. B) consumer surplus is increased. C) a higher le!el of economic efficiency is achie!ed. D)

a deadweight loss is incurred. 1+) 4hat type of mar&et automatically reaches economic efficiency5 A) A mar&et with a go!ernment mandated price floor. B) A mar&et with a go!ernment mandated price ceiling. C) A competiti!e mar&et with no go!ernment inter!ention. D) All of the a o!e. 13) There is a deadweight loss: A) when the mar&et is at the competiti!e e1uili rium. B) whene!er the mar&et is forced away from the competiti!e e1uili rium. C) when the mar&et produces where marginal costs e1ual marginal enefit. D) when economic surplus is ma#imi2ed. *e#er to 3+1 #or the ,uestions be!o-+

6igure $.1 17) ,n figure $.1' at e1uili rium consumer surplus would e: A) D. B) DJEJK. C) AJBJC. D) C. 2/) ,n figure $.1' at e1uili rium producer surplus would e: A) D. B) DJEJK. C) AJBJC. D)

C. 21) ,n figure $.1' an effecti!e price floor would e: A) *1. B) *2. C) *". D) all of the a o!e. 22) ,n figure $.1' with an effecti!e price floor' 1uantity demanded would e: A) L1. B) L2. C) L". D) L$. 2") ,n figure $.1' with an effecti!e price floor' 1uantity supplied would e: A) L1. B) L2. C) L". D)

L$. 2$) ,n figure $.1' with an effecti!e price floor' there would e: A) a shortage of L$=L1. B) a surplus of L$=L1. C) a shortage of L"=L2. D) a surplus of L"=L2. 2() ,n figure $.1' with an effecti!e price floor' consumer surplus would e: A) D. B) DJEJK. C) AJBJC. D) C. 2)) ,n figure $.1' with an effecti!e price floor' producer surplus would e: A) D. B) DJE. C) EJAJC. D)

AJC. 2+) ,n figure $.1' the deadweight loss associated with an effecti!e price floor would e: A) KJB. B) EJA. C) AJC. D) BJ6. 23) ,n figure $.1' due to the effecti!e price floor consumers lose: A) EJK. B) DJEJK. C) A. D) BJ6. 27) ,n figure $.1' the net change for producers due to the effecti!e price floor is: A) EJK. B) E=B. C) EJAJC.

D) DJEJA. "/) Some consumers lo A) y the go!ernment to con!ince law ma&ers to impose price ceilings' so that they can:

uy at prices lower than producer costs of production. B) recei!e a larger producer surplus. C) recei!e a larger consumer surplus. D) earn more income. "1) 4hat causes a deadweight loss under a price floor5 A) 4ith a higher price' less is purchased' causing a loss in economic surplus. B) 4ith a lower price' less is produced' causing a loss in economic surplus. C) *roducers ha!e less incenti!e to produce. D) Consumers ha!e more incenti!e to uy. "2) 4ith a price ceiling what creates a deadweight loss5 A) 4ith a higher price' less is purchased' causing a loss in economic surplus. B) 4ith a lower price' less is produced' causing a loss in economic surplus. C)

*roducers ha!e more incenti!e to produce. D) Consumers ha!e less incenti!e to uy. "") 4hat causes producers to earn more income under a price floor e!en though less is produced5 A) *roducers capture some former consumer surplus ecause of the higher price. B) Consumers capture some former producer surplus ecause of the lower price. C) *roducers capture some former consumer surplus ecause of the lower price. D) Consumers capture some former producer surplus ecause of the higher price. "$) ?nder a price ceiling what ma&es some consumers etter off5 A) *roducers capture some former consumer surplus ecause of the higher price. B) Consumers capture some former producer surplus ecause of the higher price. C) *roducers capture some former consumer surplus ecause of the lower price. D) Consumers capture some former producer surplus ecause of the lower price. "() The minimum wage is an e#ample of A) a competiti!e e1uili rium price. B) a price ceiling. C)

a price floor. D) a ta# on a mar&et. ")) The minimum wage law has which of the following effects5 A) 4or&ers are willing to offer a larger 1uantity of la or for sale. B) %mployers are willing to hire a smaller 1uantity of la or. C) A surplus of la or at the minimum wage creates higher unemployment. D) All of these are effects of the minimum wage. "+) An e#ample of a price ceiling would e: A) rent controls. B) farm price supports. C) a minimum wage law. D) all of the a o!e are price ceilings. "3) *eople who are a le to rent apartments enefit from rent controls ecause: A) there are more apartments to rent. B) the lower rent lets them captured some producer surplus.

C) they find that their apartments are &ept in etter shape. D) it is easier to find an apartment in a desirea le location. "7) *rice ceilings in!aria ly create shortages which means: A) the good under the price ceiling has ecome more scarce. B) at the price ceiling' 1uantity demanded is greater than 1uantity supplied. C) at the price ceiling' 1uantity supplied is greater than 1uantity demanded. D) the good under the price ceiling has ecome more plentiful. $/) A lac& mar&et is: A) when uying and selling is at prices that !iolates go!ernment price regulations. B) when 1uantity demanded is greater than 1uantity supplied. C) when 1uantity supplied is greater than 1uantity demanded. D) when economic surplus is !ery low. $1) 4hich of the following is the result from go!ernment inter!ention in the free mar&et5 A) Some people lose. B)

There is a loss of economic efficiency. C) Some people win. D) All of these occur ecause of go!ernment inter!ention. $2) 4hat does ta# incidence refer mean5 A) 4hich go!ernment agency actually recei!es the ta# re!enue. B) 4ho sends the ta# money into the go!ernment. C) 4hat commodity is eing ta#ed. D) 4ho actually ears the urden of the ta#. $") Consumers pay 1//M of a new sales ta# on a good: A) always. B) when demand is hori2ontal. C) ne!er as the ta# is on the seller. D) when the demand cur!e is !ertical. $$) ,f a ta# is imposed on the producer: A) more of the incidence will fall on the producer. B)

more of the incidence will fall on the consumer. C) more of the incidence will fall on the go!ernment. D) what party the incidence of the ta# falls on will e no different than if the ta# was imposed on the consumer.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 6 E5erna!ities$ En%ironmenta! 0o!ic)$ and 0ub!ic 4oods
1) An e#ternality is: A) a enefit reali2ed y the purchaser of a good or ser!ice. B) a cost paid for y the producer of a good or ser!ice. C) a enefit or cost felt y someone who is not a producer or consumer of a good or ser!ice. D) anything that is e#ternal or not rele!ant to the production of a good or ser!ice. 2) ,f your neigh or urns auto tires in the yard and you can smell them and cannot see sunlight ecause of the lac& smo&e' you are e#periencing: A) a positi!e e#ternality. B) a negati!e e#ternality. C) a pri!ate cost. D) a pri!ate enefit. ")

%#ternalities: A) should e anned. B) should e su sidi2ed. C) can either e positi!e or negati!e. D) are what the pri!ate consumer and producer in an e#change reali2e. $) ,f you uy a sweater to &eep you warm in the winter' you are e#periencing a: A) pri!ate enefit. B) e#ternal enefit. C) social cost ecause it cost you some money. D) loss of consumer surplus. () ,f a negati!e e#rternalitiy e#ists in reality' it will e e#perienced y: A) some people not directly in!ol!ed in the production or consumption of the good or ser!ice. B) the producer of the good or ser!ice. C) the consumers of the good or ser!ice. D) the go!ernment. ))

An e#ample of a positi!e e#ternality would e: A) cleaning up the sidewal& on your loc&. B) graduating from college. C) repainting the house you li!e in. D) all of the a o!e. +) 4hich of the following is correct5 A) *ri!ate cost e1uals e#ternal cost. B) *ri!ate enefit plus e#ternal enefit e1uals social enefit. C) %#ternal cost minus pri!ate cost e1uals social cost. D) *ri!ate enefit e1uals e#ternal enefit minus social enefit. 3) 4hy might e!en well=meaning producers in a mar&et economy pollute5 A) To a!oid the e#ternal costs of production B) By polluting' supply is reduced and mar&et price increases. C) *olluting producers are eing irrational. D) There is no good reason why some producers pollute.

7) ,f there is pollution in producing a good and ser!ice' then: A) e1uili rium price is too high and e1uili rium 1uantity is too low. B) e1uili rium price and e1uili rium 1uantity are too low. C) e1uili rium price and e1uili rium 1uantity are too high. D) e1uili rium price is too low and e1uili rium 1uantity is too high. 1/) Because producers do not ear the e#ternal cost of pollution: A) the economically efficient le!el of production is achie!ed. B) production is elow the economically efficient le!el. C) production is eyond the economically efficient le!el. D) the mar&et price is too high. *e#er to i'ure 6+1 #or the ,uestions be!o-+

6igure (.1 11) 6igure (.1 shows: A) a positi!e e#ternality. B) a negati!e e#ternality. C) common property. D) a pu lic good. 12) ,n figure (.1 the firm wants to produce: A) L1. B) L2. C) L". D)

L$. 1") ,n figure (.1 the efficient output is: A) L1. B) L2. C) L". D) L$. 1$) 4hen a competiti!e mar&et e1uili rium is economically efficient: A) there is a positi!e deadweight loss. B) producer and consumer surplus are e#actly e1ual in si2e. C) there are no positi!e and no negati!e e#ternal effects from consumption and production. D) All of these must e correct. 1() 4hich of the following is true when a negati!e e#ternal effect creates a deadweight loss5 A) The marginal enefit to consumers is e1ual to the marginal cost to society of the last units produced. B) The marginal enefit to consumers is a o!e the marginal cost to society of the last units produced. C) The marginal enefit to consumers is elow the marginal cost to society of the last units produced. D)

Bone of these are true. 1)) 4hen there is a positi!e e#ternality in a free mar&et' there is: A) too much of the good produced and consumed. B) too little of the good produced and consumed. C) the right amount of the good produced and consumed. D) an economically efficient le!el of production and consumption. 1+) 4hen there is a positi!e e#ternality' then: A) the marginal pri!ate enefit is less than the marginal social enefit at e1uili rium. B) the marginal pri!ate enefit is greater than the marginal social enefit at e1uili rium. C) the marginal pri!ate enefit is e1ual to the marginal social enefit at e1uili rium. D) the marginal pri!ate costs are declining. *e#er to i'ure 6+" #or the ,uestions be!o-+

6igure (.2 13) ,f figure (.2' the firm wants to produce: A) L1. B) L2. C) L". D) L$. 17) ,f figure (.2' the efficient output is: A) L1. B) L2. C) L". D)

L$. 2/) ,f figure (.2' the dead weight loss due to the e#ternality is: A) 6JF B) @J< C) TJ? D) AJBJCJ%J6 21) The le!el of pollution in reality should e: A) reduced completely to 2ero ecause y definition' it is a negati!e e#ternal effect. B) ignored ecause it has always een present since the eginning of history. C) reduced to the point where the marginal enefit is e1ual to the marginal cost to society. D) left alone ecause the optimal le!el is contro!ersial. 22) The est le!el of pollution for society is: A) 2ero. B) where total enefit from reducing the pollution is the greatest. C) where marginal enefit from reducing the pollution is the greatest.

D) where net enefit from reducing the pollution is the greatest. 2") The Coase theorem is that: A) go!ernment inter!ention is always needed if e#ternalities are present. B) assigning property rights is the only thing the go!ernment should do in a mar&et economy. C) if transactions costs are low' pri!ate argaining will result in an efficient solution to the pro lem of e#ternalities. D) a free mar&et e1uili rium is always the est solution. 2$) ,f go!ernment decides to control pollution y placing a ta# on the product that is associated with the pollution' the si2e of the ta# should e: A) that will force the mar&et price so high that no uyer can afford the product. B) e1ual to the social cost of the product. C) e1ual to the pri!ate cost of the product. D) e1ual to the e#ternal cost of the product. 2() Ao!ernment can increase the consumption of a good or ser!ice that has positi!e e#ternalities y: A) su sidi2ing the production of the good or ser!ice so that the supply is increased and mar&et price is reduced. B) ta#ing the production and consumption of the good or ser!ice. C)

con!incing e!eryone to consume the good. D) y assigning property rights. 2)) 4ho was the economist who first proposed that go!ernments use ta#es and su sidies to correct for e#ternalities5 A) :onald Coase B) A. C. *igou C) Adam Smith D) none of these 2+) The imposition of a ta# on the production of a polluting good or ser!ice that is e1ual to the e#ternal costs will: A) increase the e1uili rium mar&et price. B) decrease the e1uili rium 1uantity produced and consumed. C) decrease mar&et supply of the product. D) all of the a o!e. 23) A good or ser!ice is considered to e e#cluda le: A) if you can &eep other people who did not pay for the item from en0oying its enefits. B) if you can>t &eep other people who did not pay for the item from en0oying its enefits.

C) when you consume a unit of the good' there is one less for e!eryone else. D) when all people can e considered as an owner and no one is e#cluded from ownership. 27) A good or ser!ice is considered to e none#cluda le: A) if you can &eep other people who did not pay for the item from en0oying its enefits. B) if you can>t &eep other people who did not pay for the item from en0oying its enefits. C) when if you consume a unit' there is one less for e!eryone else. D) when all people are considered owners. "/) 4hen is a good or ser!ice considered to e ri!al in nature5 A) ,f you can &eep other people who did not pay for the item from en0oying its enefits. B) ,f you can>t &eep other people who did not pay for the item from en0oying its enefits. C) 4hen you consume one unit there is one less for e!eryone else. D) All people are considered to e owners. "1) A good that is oth ri!al and e#cluda le is a: A) pu lic good. B)

pri!ate good. C) natural monopoly. D) common resource. "2) A good that is nonri!alrous and none#cluda le is a: A) pu lic good. B) pri!ate good. C) natural monopoly. D) common resource. "") A good that is ri!al and none#cluda le is a: A) pu lic good. B) pri!ate good. C) natural monopoly. D) common resource. "$) A pu lic good differs from a pri!ate good in that: A) only the go!ernment can produce pu lic goods. B)

if a person does not pay for the good' they can e &ept from en0oying the enefits of a pu lic good. C) if you consume a unit of a pu lic good' there is one less for e!eryone. D) no one can e &ept from en0oying the enefits of a pu lic good and one person using it does not reduce the amount a!aila le for e!eryone else. "() ,f someone en0oys the enefits from national defense ut ne!er pays any ta#es to support it' that person is &nown in economics as a: A) ta# cheater. B) free loader. C) homeless person. D) free rider. ")) An e#ample of a good that has none#clusi!e enefits would e: A) ca&es for sale at a a&ery. B) a light house. C) houses. D) toothpic&s. "+) An e#ample of a natural monopoly type of good would e: A)

ca le tele!ision. B) apples. C) air. D) none of these. "3) The mar&et demand for pu lic goods can e determined y: A) y adding up how much each citi2en is willing to uy at e!ery possi le price. B) multiplying how much each citi2en is willing to uy at e!ery price. C) adding up how much each consumer will pay for each unit of the pu lic good. D) multiplying how much each consumer will pay for each unit of the pu lic good. "7) 6or profit producers will produce only pri!ate goods ecause: A) they are small enough that e!eryone can afford them. B) the cost of production is easily found. C) uyers will e willing to pay for it ecause enefits are e#cluda le. D) they are greedy. $/) ,n which of these situations is there no deadweight loss5 A)

6ree mar&et production of a pri!ate good with a negati!e e#ternality B) 6ree mar&et consumption of a pri!ate good with a positi!e e#ternality C) 6ree mar&et production and consumption of a pri!ate good without any e#ternalities D) Consumption of a common resource without go!ernment restrictions $1) ;!eruse of a common resource may e a!oided in modern times y: A) go!ernments ta#ing use of common resources. B) go!ernments issuing tradea le permits for use of common resources. C) go!ernments issuing 1uotas or legal limits for use of common resources. D) all of the a o!e. $2) ,f you uy a product for your own use' it is a: A) pri!ate good. B) pu lic good. C) natural monopoly. D) common resource. $") The social cost of cutting trees for firewood in a go!ernment forest are:

A) the rising chance of flooding as more trees are cut. B) the rising chance of flooding as more trees are cut plus the pri!ate cost of the cutting. C) opportunity cost to the indi!idual of cutting the wood. D) the marginal costs of cutting the last tree.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 7 E!asticit): The *esponsi%eness o# 2emand and (upp!)
1) *rice elasticity of demand measures: A) how responsi!e to price changes suppliers are. B) how responsi!e sales are to changes in the price of a related good. C) how responsi!e 1uantity demanded is to a change in price. D) how responsi!e sales are to a change in uyers> incomes. 2) The price elasticity of demand is e1ual to: A) the slope !alue of the supply cur!e. B) the slope !alue of the demand cur!e. C) the percentage change in price di!ided y the percentage change in 1uantity demanded. D)

the percentage change in 1uantity demanded di!ided y the percentage change in price. ") ,f the price of gasoline increases "/ percent and this causes the 1uantity demanded to fall 1( percent' the elasticity of demand is e1ual to: A) minus $(/. B) minus 2. C) minus /.(. D) minus 1(. $) The elasticity of demand is always negati!e ecause: A) of the law of supply. B) of the law of demand. C) it depends on percentages. D) it depends on whether or not demand shifts or not when price changes. () ,f the percentage change in price is 2/ percent and the elasticity of demand !alue is minus (' then 1uantity demanded: A) will increase 1// percent. B) will increase y ( percent. C)

will decrease y 1// percent. D) ,mpossi le to determine without additional information. )) A hori2ontal demand cur!e is: A) perfectly inelastic. B) perfectly elastic. C) unit elastic. D) relati!ely elastic. +) A !ertical demand cur!e is: A) perfectly inelastic. B) perfectly elastic. C) unit elastic. D) relati!ely elastic. *e#er to 7+1 #or the ,uestions be!o-+

6igure ).1 3) ,n figure ).1' the demand cur!e that is perfectly inelastic is: A) graph a. B) graph . C) graph c. D) none of the a o!e. 7) ,n figure ).1' the demand cur!e that is perfectly elastic is: A) graph a. B)

graph . C) graph c. D) none of the a o!e. 1/) ,n figure ).1' the demand cur!e on which elasticity changes at e!ery point is: A) graph a. B) graph . C) graph c. D) none of the a o!e. 11) ,f 2/ units are sold at a price of .)/ and "/ units are sold at a price of .$/' then the elasticity of demand calculated using the midpoint formula is: A) minus 1. B) minus 1.3. C) minus .1). D) none of the a o!e. 12) ,f 2/ units are sold at a price of .(/ and "/ units are sold at a price of .$/' then the elasticity of demand calculated using the midpoint formula is: A)

minus /.(). B) minus 1.3. C) minus 1. D) none of the a o!e. 1") ,f' when price changes y (/ percent' the 1uantity demanded changes y 1( percent' what is the elasticity of demand !alue5 A) "."" B) minus "."" C) /."/ D) minus /."/ 1$) The range of possi le !alues for the elasticity of demand !alue is: A) 2ero to infinity. B) positi!e infinity to negati!e infinity. C) 2ero to minus infinity D) minus one to minus infinity. 1() 4hich of the following statements a out elasticity of demand is ,BC;::%CT5

A) The elasticity of demand !alue is the reciprocal of the demand cur!e>s slope !alue. B) ,f 1uantity demanded changes y a larger percentage than the percentage change in price' demand is elastic. C) The elasticity of demand !alue is always negati!e. D) A straight line demand cur!e has a !arying elasticity of demand !alue. 1)) 4hen there many good su stitutes a!aila le for a good' demand tends to e: A) perfectly inelastic. B) perfectly elastic. C) relati!ely inelastic. D) relati!ely elastic. 1+) 4hich of the following statements a out elasticity of demand is correct5 A) The elasticity of demand for a good in general is e1ual to the elasticity of demand for a specific rand of the good. B) The a solute !alue of the elasticity of demand ranges from 2ero to one. C) Demand is more elastic in a long time period than it is in a short time period. D) Demand is more elastic the smaller percentage of the consumer>s udget the item ta&es up. 13)

4hich of the following types of goods has the most inelastic demand5 A) Becessities B) <u#uries C) Aoods with many su stitutes D) Aoods whose price is high relati!e to consumers> udgets 17) ,f the demand for a lifesa!ing drug were perfectly inelastic and the price dou led' the 1uantity demanded would: A) dou le also. B) decrease y (/ percent. C) e cut in half. D) remain constant. 2/) ,f a percentage change in price causes a smaller percentage change in 1uantity demanded' then demand is: A) unit elastic. B) perfectly elastic. C) relati!ely inelastic. D) more information is needed.

21) Total re!enue e1uals: A) price per unit times 1uantity sold. B) change in price per unit times 1uantity sold. C) price per unit times change in 1uantity 1uantity sold. D) price per unit di!ided y 1uantity sold. 22) A demand cur!e that is hori2ontal indicates that the commodity: A) has few su stitutes. B) must e !ery cheap. C) is a necessity. D) has a large num er of su stitutes. 2") 4hich of the following goods would most li&ely ha!e the most inelastic demand5 A) S&i !acations B) Bread C) <u#ury cars D)

Big screen T-s 2$) A type of demand cur!e that does not ha!e the same price elasticity of demand !alue at e!ery point is: A) a !ertical demand. B) a down sloping straight line demand. C) a hori2ontal demand. D) all of the a o!e. 2() 6or a profit=ma&ing seller' the est type of demand elasticity would e: A) highly elastic. B) highly inelastic. C) unit elastic. D) any elasticity as demand elasticity does not matter to the seller. 2)) 4hen demand is price inelastic' a fall in price causes total re!enue to fall' ecause: A) anytime price decreases' total re!enue will decrease also. B) 1uantity sold remains the same and thus total re!enue has to fall. C) the increase in 1uantity sold is not large enough to offset the drop in price. D)

all of the a o!e. 2+) 4hen demand is unit price elastic' a change in price causes total re!enue to stay the same ecause: A) the change in 1uantity demanded e#actly offsets the opposite change in price. B) uyers are uying the same 1uantity. C) total re!enue ne!er changes with price changes. D) all of the a o!e. 23) ,f a firm raised its price and disco!ered that its total re!enue fell' then the demand for its product is: A) perfectly inelastic. B) relati!ely inelastic. C) perfectly elastic. D) relati!ely elastic. 27) ,f a firm raised its price and found that total re!enue fell to 2ero' then the demand for its product is: A) perfectly inelastic. B) relati!ely inelastic. C) perfectly elastic. D)

relati!ely elastic. "/) ,f a firm lowered the price of the product it sells and found that total re!enue did not change' then the demand for its product is: A) perfectly inelastic. B) perfectly elastic. C) unit=elastic. D) relati!ely elastic. "1) ,f a firm wanted to &now whether the demand for its product was elastic' unit elastic' or inelastic' then the firm could: A) sur!ey competitors and as& them what they thin& demand elasticity for the product is. B) tal& to its customers. C) change price a little it and o ser!e what happens to total re!enue. D) do not do anything as there is no way to find an elasticity !alue. "2) 4hen a firm changes its price' the change in total re!enue: A) depends on the elasticity of demand !alue and the direction of the price change. B) is 2ero. C) is positi!e.

D) is negati!e. "") @ow does elasticity of demand eha!e on a down sloping straight line demand cur!e5 A) ,t is inelastic at high prices and elastic at low prices. B) ,t is the same !alue at e!ery point. C) ,t is elastic at high prices and inelastic at low prices. D) Bone of these is correct. "$) ;n a down sloping' straight line demand cur!e' total re!enue is the greatest: A) where demand is normal. B) where demand is the most inelastic. C) where demand is the most elastic. D) where demand is unit elastic. "() 4hich of the following does B;T affect the price elasticity of demand for a product5 A) The num er of close su stitutes a!aila le for the product. B) %#penditures on the product relati!e to uyers> incomes. C)

@ow long uyers ha!e to respond to any price change. D) @ow much demand shifts when uyers> incomes change. ")) ,f at a price of .1(' 2/ units are sold while at .2/' 1/ units are sold' then the price elasticity of demand for this good is: A) elastic. B) inelastic. C) unit elastic. D) perfectly elastic. "+) ,f at a price of .(/' 2/ units are sold and at a price of .)/' / units are sold' the price elasticity of demand of the good is: A) elastic. B) perfectly elastic. C) unit elastic. D) perfectly inelastic. "3) ,f at a price of .1/' fi!e units are sold while at a price of .3/' fi!e units are sold' then the elasticity of demand for this good is: A) perfectly elastic. B)

inelastic. C) perfectly inelastic. D) unit elastic. "7) ,f at a price of .(/' 2/ units are sold while at a price of .$/' 2( units are sold' then the elasticity of demand for this good is: A) elastic. B) inelastic. C) perfectly inelastic. D) unit elastic. $/) Cross=price elasticity of demand is calculated as the: A) percentage change in 1uantity demanded di!ided y percentage change in price of a good. B) percentage change in 1uantity demanded of one good di!ided y percentage change in price of a different good. C) percentage change in 1uantity sold di!ided y percentage change in uyers> incomes. D) percentage change in 1uantity supplied di!ided y percentage change in price of a good. $1) ,f the cross=price elasticity of demand for goods A and B is a negati!e !alue' this means the two goods are: A) su stitutes.

B) complements. C) inferior. D) normal. $2) ,f a firm is in an anti=trust court case accused of monopoli2ing a product' the firm would hire an economist to show: A) the cross=price elasticity of demand etween the firm>s good and another is negati!e. B) the cross=price elasticity of demand etween the firm>s good and another is positi!e. C) the price elasticity of demand for the firm>s good is highly inelastic. D) the income elasticity of the firm>s good is inferior. $") ,f the cross=price elasticity of demand for goods A and B is 2ero' this means the two goods are: A) su stitutes. B) complements. C) inferior. D) unrelated. $$) ,ncome elasticity measures: A)

how a good>s 1uantity demanded responds to change in the goods price. B) how a good>s 1uantity demanded responds to change in the price of another good. C) how a good>s sales responds to change in uyers> incomes. D) how a good>s sales respond to producers> incomes. $() ,f a good>s income elasticity of demand is positi!e' this means: A) sales of the good are responsi!e to changes in price. B) sales of the good are responsi!e to changes in the price of another good. C) sales of the good fall when uyers> income increase. D) sales of the good increase when uyers> incomes increase. $)) ,f a good has a negati!e income elasticity of demand' this indicates the good is: A) a su stitute with another good. B) a complement with another good. C) inferior. D) normal. $+) ,f you e#pect the economy is going to e in a recession for se!eral years.' you should loo& for a 0o in an industry with an income elasticity of:

A) positi!e fi!e. B) positi!e three. C) negati!e fi!e. D) none of a o!e. $3) 4hy has income of small family farms decreased o!er time5 A) Technology has increase farm producti!ity and mar&et supply. B) The demand for farm products is price inelastic. C) The demand for farm products is income inelastic. D) All of a o!e. $7) The income elasticity for inferior goods is always: A) positi!e in !alue. B) negati!e in !alue. C) impossi le to determine. D) e1ual to one. (/)

The price elasticity of supply is always: A) positi!e. B) negati!e. C) greater than one. D) impossi le to determine. (1) *rice inelastic supply occurs whene!er the elasticity of supply !alue is: A) negati!e. B) positi!e and greater than fi!e. C) positi!e and greater than one. D) positi!e and less than one. (2) *rice elastic supply occurs whene!er the elasticity of supply !alue is: A) negati!e. B) positi!e and greater than fi!e. C) positi!e and greater than one. D) positi!e and less than one.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 8 irms$ the (tock Market$ and Corporate 4o%ernance
1) To succeed' entrepreneurs must: A) produce the goods and ser!ices that consumers want at a lower cost than consumers themsel!es can produce. B) organi2e the factors of production into a functioning' efficient unit. C) o tain access to sufficient funds. D) all of the a o!e. 2) To succeed' firms need to: A) produce a standardi2ed product. B) o tain access to sufficient funds. C) produce a large amount of its product. D) all of the a o!e. ") The type of usiness that has the fewest layers of management is: A) a sole proprietorship. B) a partnership. C)

a corporation. D) all types of usinesses ha!e the same num er of layers of management. $) The type of usiness that is the most difficult to set up is: A) a sole proprietorship. B) a partnership. C) a corporation. D) all types of usinesses are e1ually difficult to set up. () The type of usiness that has the greatest a ility to raise funds is: A) sole proprietorship. B) partnership. C) corporation. D) all types of usinesses ha!e e1ual a ility to raise funds. )) A primary difference etween a sole proprietorship and a partnership is: A) sole proprietorships ha!e unlimited lia ility while partnerships ha!e limited lia ility. B) partnerships can issue stoc&s and onds while sole proprietorships cannot. C)

partnerships ha!e more owners than do sole proprietorships. D) sole proprietorships ha!e more layers of management than partnerships. +) Sole proprietorship and a corporation differ in that: A) sole proprietorships ha!e unlimited lia ility while corporations ha!e limited lia ility. B) sole proprietorships ha!e an easier access to funds than corporations. C) sole proprietorships face more ta#es than corporations. D) sole proprietorships are more difficult to organi2e than corporations. 3) 4ho controls a sole proprietorship5 A) Stoc&holders B) Bondholders C) The owner D) all of these 7) 4ho owns a corporation5 A) The oard of directors B) The stoc&holders

C) The employees D) The C%; 1/) <imited lia ility means: A) the personal assets of the owners can e claimed if the usiness is an&rupt. B) only employees can ha!e a claim on the assets of the usiness. C) the personal assets of the owners cannot e claimed if the usiness is an&rupt. D) any ody with a lia ility against a firm can claim only what their lia ility refers to. 11) An ad!antage that a sole proprietorship form of usiness does B;T ha!e is: A) the owner ha!ing complete control o!er the usiness. B) fewer go!ernment rules and regulations to comply with. C) only one le!el of ta#ation. D) ease of attaining additional funding. 12) An ad!antage that the corporate form of usiness organi2ation does B;T ha!e is: A) separation of ownership and usiness lia ility. B)

enhanced a ility to raise funds. C) a ility to share ris&s. D) fa!ora le ta# treatment. 1") 4hich of the following is an ad!antage of starting a new usiness as a corporation5 A) 6a!ora le ta# treatment. B) %asy to set up. C) ,ne#pensi!e to legally organi2e. D) Areater a ility to raise funds. 1$) The most common type of usiness in the ?nited States is: A) corporations. B) partnerships. C) sole proprietorships. D) go!ernment firms. 1() The least common type of usiness in the ?nited States is: A) corporations. B)

partnerships. C) sole proprietorships. D) entrepreneurs. 1)) The type of usinesses that earn the most re!enue in the ?nited States are: A) corporations. B) partnerships. C) sole proprietorships. D) entrepreneurs. 1+) The type of usinesses that earn the largest percentage of aggregate profits in the ?nited States are: A) corporations. B) partnerships. C) sole proprietorships. D) entrepreneurs. 13) A corporation is operated and controlled in its day=to=day acti!ities y its: A) oard of directors.

B) stoc&holders. C) employees. D) management. 17) A corporation is owned y its: A) oard of directors. B) stoc&holders. C) hired managers. D) employees. 2/) The oard of directors of a corporation are selected y: A) the state where the corporation is chartered. B) the employees of the corporation. C) the stoc&holders of the corporation. D) the managers of the corporation. 21) An inside director is: A)

the manager who directs production inside the firm. B) a mem er of a corporate oard of directors who is also a manager of the usiness. C) a C%; that is selected y the corporation>s oard of directors. D) a mem er of a corporate oard of directors who also wor&s for the go!ernment. 22) A situation where a hired manager does not ha!e the same interests as the owners of the usiness is &nown as: A) a con1uest and control pro lem. B) a financial pro lem. C) a principal=agent pro lem. D) a financial intermediary pro lem. 2") ;ne way to try to reduce the principal=agent pro lem is to: A) threaten to li1uidate the firm. B) lin& top manager salaries to the profits of the firm or the price of the firm>s stoc&. C) ha!e the C%; e a rotating position. D) for id managers from owning any company stoc&. 2$) Sole proprietorships or partnerships can raise funds for e#pansion y: A)

orrowing from someone or an institution willing to lend the funds. B) rein!esting profit ac& into the usiness. C) ta&ing on a partner or more partners. D) All of these are sources of funds.

2() 6inancial intermediaries in a mar&et economy: A) create and print money. B) &eep the price le!el sta le. C) ring together sa!ers and orrowers. D) pro!ide safe deposits for people and usinesses. 2)) Direct finance includes: A) ownership in corporations is sold in the form of common stoc&. B) corporate onds are sold to sa!ers. C) a flow of funds from sa!ers to firm through financial mar&ets. D) all of the a o!e. 2+) ,f the coupon rate on a newly issued ond is higher than the interest rate on similar onds' then: A) the mar&et price of the ond will e e1ual to the face !alue. B) the mar&et price of the ond will e lower than the face !alue. C) the mar&et price of the ond will e higher than the face !alue. D)

the face !alue of the ond will fall. 23) The difference etween the highest stoc& price and the lowest stoc& price o!er the pre!ious year indicates: A) the stoc&>s coupon yield. B) the stoc&>s price=earnings ratio is. C) how !olatile the stoc&>s mar&et price has een. D) the di!idend yield. 27) <ia ilities are: A) anything of !alue owned y a person or a usiness. B) anything a person or a usiness owes to entities outside the usiness. C) what occurs when a usiness is sued. D) what a usiness owes to its stoc&holders. "/) An e#ample of an implicit cost is: A) the out=of=poc&et e#pense to hire resources. B) ta#es owed to the state and 6ederal go!ernments. C) opportunity costs of using the firm>s own resources. D)

the full cost of hiring wor&ers' including fringe enefits. "1) %conomic profit is: A) gross re!enue minus e#plicit costs. B) gross re!enue minus implicit costs. C) gross re!enue minus e#plicit and implicit costs. D) e1ual to accounting profit. "2) A dollar today is more !alua le than a dollar a year from now ecause: A) the dollar today can e immediately used to uy something. B) a dollar a year from now will li&ely ha!e less purchasing power ecause of inflation. C) the un&nown future is more ris&y than the &nown present. D) all of the a o!e. "") Among the differences etween a share of stoc& and a ond is: A) a stoc& can possi ly pay di!idends fore!er' ut onds ha!e a fi#ed num er of payments. B) differences of opinion a out a stoc&>s future may !ary considera ly ut there is less difference a out a ond>s future. C) the future growth of a stoc& is more uncertain than the payments of a ond. D)

all of the a o!e. "$) 4hat must alance on a alance sheet5 A) Total assets must e1ual total lia ilities plus e1uity. B) :e!enues must e1ual costs. C) :etained earnings plus di!idends paid must e1ual earnings per share. D) All of these must alance. "() Shown on a firm>s income statement is a firm>s: A) costs. B) net worth. C) re!enues. D) all of the a o!e. ")) ;perating income is: A) e#plicit plus implicit costs. B) stoc&holders> e1uity. C) re!enue minus operating e#penses. D)

net profit.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 9 Comparati%e &d%anta'e and the 4ains #rom 1nternationa! Trade
1) ,f a nation has an a solute ad!antage in producing a good or ser!ice' this means that: A) no other nation can produce the good. B) the nation has the lowest opportunity cost to produce that good. C) using the same amount of resources' the nation can produce more of that good than any other nation. D) all of the a o!e. 2) ,f a nation has a comparati!e ad!antage in producing a good or ser!ice' this means that: A) using the same amount of resources' this nation can produce more of the good than any other nation. B) using the same amount of resources' this nation can produce the good at a lower opportunity cost than any other nation. C) the nation is the only possi le producer of the good in the world. D) the nation has a monopoly in the production of the good. ") ,f nation A can produce 2/ power plants and 1) ships while nation B can produce 13 power plants and 12 ships' then: A) A has an a solute ad!antage in producing oth power plants and ships. B)

B has an a solute ad!antage in producing oth power plants and ships. C) A has an a solute ad!antage in producing power plants while B has an a solute ad!antage in producing ships. D) B has an a solute ad!antage in producing power plants while A has an a solute ad!antage in producing ships. $) ,f nation A can produce 2/ power plants and 1) ships' while nation B can produce 13 power plants and 12 ships' then A>s opportunity cost to produce a unit of power plants is: A) 1) ships. B) 3 ships. C) /.3 ships. D) impossi le to determine without more information. () ,f nation A can produce 2/ power plants and 1) ships while nation B can produce 13 power plants and 12 ships' then A>s opportunity cost to produce a ship is: A) /.3 power plants. B) 1.2( power plants. C) 2/ power plants. D) impossi le to determine without more information. )) ,f nation A can produce 2/ power plants and 1) ships while nation B can produce 13 power plants and 12 ships' then B>s opportunity cost to produce a power plant is: A)

/.))) ship. B) 1.( ships. C) 12 ships. D) impossi le to determine without more information. +) ,f nation A can produce 2/ power plants and 1) ships while nation B can produce 13 power plants and 12 ships' then according to comparati!e ad!antage: A) A should produce power plants and B should produce ships. B) B should produce power plants and A should produce ships. C) A should produce oth power plants and ships. D) B should produce oth power plants and ships. 3) 4orld output of goods and ser!ices can e ma#imi2ed: A) y ha!ing e!ery country produce some of e!ery good. B) y ha!ing e!ery nation produce the good it has an a solute ad!antage in producing. C) y ha!ing e!ery nation produce the good it has a comparati!e ad!antage in producing. D) y letting the ?nited Bations decide who produces what. 7) ;utsourcing is:

A) importing a manufactured good made y a foreign firm. B) e#porting a good or ser!ice to uyers in other countries. C) when wor&ers in a foreign country are hired y a domestic firm to produce something sold domestically. D) when domestic wor&ers are hired y a domestic firm to produce something sold e#clusi!ely in other countries. 1/) 6irms outsource: A) to o tain a higher 1uality product regardless of the cost. B) to escape tariffs. C) ecause costs of production are lower if the firm uses resource in another country. D) ecause domestic resources can not do the 0o . *e#er to i'ure 9+1 #or the ,uestions be!o-+

6igure 3.1 11) ,n figure 3.1 without trade the people of the country consume and produce: A) L1. B) L2. C) L". D) none of the a o!e. 12) ,n figure 3.1 with free trade the people of the country consume: A) L1. B) L2. C) L". D) none of the a o!e. 1") ,n figure 3.1 with free trade the people of the country produce: A) L1. B) L2. C) L". D)

none of the a o!e. 1$) ,n figure 3.1 with free trade consumer gain area: A) B. B) C. C) CJ%J6. D) CJA. 1() ,n figure 3.1 with free trade domestic producers: A) gain C. B) lose C. C) gain %J6. D) lose %J6. 1)) ,n figure 3.1 with free trade the people of the country: A) e#port L"=L1. B) import L"=L1. C) e#port L2=L1.

D) import L2=L1. 1+) ,n figure 3.1 the gains from free trade are: A) BJCJ%J6. B) BJCJA. C) %J6. D) @J,JFJG. 13) A nation that does not trade with other nations: A) ma#imi2es the num er of 0o s in its economy. B) will ha!e lower prices than other countries. C) will ha!e its citi2ens consuming at a lower standard of li!ing than if it traded. D) will ha!e as large a Aross Domestic *roduct as is possi le. 17) Among the losers with free trade are: A) consumers ecause they pay a higher price for imported goods. B) resource owners in an import=competing industry ecause the industry produces less. C)

go!ernment ecause national income and ta# re!enues fall. D) all of the a o!e. 2/) Among those who enefit from free trade are: A) the people of a country as a whole. B) each firm in the country. C) each person in the country. D) all of the a o!e. 21) Among the sources of comparati!e ad!antage is: A) a higher le!el of technology relati!e to other nations in producing a particular good. B) a fa!ora le natural resource andN or climate. C) a relati!e a undance of la or and capital. D) all of the a o!e. 22) The impact of a tariff on an imported good is: A) it &eeps the good from eing imported. B) it reduces the amount of imports. C)

it sets the ma#imum num er of a good that is allowed into the economy. D) it increases the amount of imports. *e#er to i'ure 9+" #or the ,uestions be!o-+

6igure 3.2 2") ,n figure 3.2' with free trade domestic production is: A) L1. B) L2. C) L". D) L$. 2$) ,n figure 3.2' with the tariff domestic production is: A) L1. B)

L2. C) L". D) L$. 2() ,n figure 3.2' with the tariff domestic consumption is: A) L1. B) L2. C) L". D) L$. 2)) ,n figure 3.2' with the tariff imports are: A) L$=L1. B) L$=L". C) L"=L2. D) L2=L1. 2+) ,n figure 3.2' with the tariff go!ernment re!enue is: A) C. B)

%JA. C) 6. D) AJB. 23) ,n figure 3.2' with the tariff domestic producers gain: A) %JA. B) CJ%J6JA. C) C. D) AJB. 27) ,n figure 3.2' with the tariff domestic consumers lose: A) %JA. B) CJ%J6JA. C) C. D) AJB. "/) ,n figure 3.2' the deadweight loss due to the tariff is: A) CJ6.

B) %JA. C) BJ6. D) ,JFJGJ<J9. "1) The winner with a tariff on a good not produced domestically is: A) domestic consumers. B) foreign producers of the good affected. C) the go!ernment that imposes the tariff. D) all of the a o!e. "2) A tariff leads to: A) a higher domestic price. B) more re!enue for the tariff imposing go!ernment. C) a domestic deadweight loss. D) all of the a o!e. "") An import 1uota sets: A)

the ta# on an imported good. B) the ma#imum num er of units of a good that can e imported. C) the 1uality of an imported good. D) who is allowed to uy an imported good. "$) 4ith free trade and no transportation costs the domestic price of an imported good: A) remains at the domestic price. B) rises to the world price. C) falls to the world price. D) is set y the domestic go!ernment. "() Among the losers with an import 1uota are: A) domestic producers of the good. B) the domestic go!ernment. C) domestic consumers of the good. D) All of these groups gain. ")) *rotection: A)

eliminates the gains from trade. B) reduces the gains from trade. C) reduces domestic production of the protected good. D) reduces go!ernment interference in the mar&et. "+) Alo ali2ation is: A) mo!es to unify the world under a single go!ernment. B) an effort to produce economic growth y high tariffs. C) the process of countries ecoming more open to foreign trade and in!estment. D) the process of the world adopting a single currency. "3) After the Borth American 6ree Trade Agreement went into effect: A) wages in the ?nited States fell. B) wages in 9e#ico con!erged with wages in the ?nited States. C) wages in Canada and the ?nited States fell. D) wages in oth the ?nited States and 9e#ico increased and 9e#ican wages did not come closer to ?.S. wages. "7) Dumping is:

A) foreign producers gi!ing their products away free to gain customers. B) gi!ing up free trade' in essence' dumping it. C) selling a product in another country at a price elow the cost of production. D) the loss associated with a tariff. $/) An import 1uota: A) raises domestic price for the product. B) increased domestic production of the product. C) reduces the 1uantity of the product imported. D) all of the a o!e. $1) 4ith trade etween two countries: A) the most powerful nation will enefit the most and the other will not enefit. B) terms of trade must e at the same ratio as the e#change rate etween the two currencies. C) oth nations must enefit. D) there will always e one gaining nation and one losing nation. $2)

6ree international trade: A) causes inflation in all trading countries. B) causes unemployment in all industries in all trading countries. C) ma&es up for the immo ility of resources li&e natural resources. D) causes the losses of those who lose to e greater than the gains of those who gain. $") A multinational firm is: A) a firm engaged in either importation or e#portation. B) a firm that has corporate head1uarters in more than one country. C) a firm that has production facilities in more than one country. D) all of the a o!e. $$) Among the factors that ha!e prompted corporations to go multinational is: A) to a!oid a tariff. B) to a!oid losses from currency e#change rate !ariations. C) gaining access to low=cost la or. D) all of the a o!e.

$() The widening gap etween the wages of s&illed and uns&illed la or in the ?.S. in recent years has een caused y: A) Borth American 6ree Trade Agreement. B) glo ali2ation. C) low wage foreign la or. D) greater demand for high s&illed la or. $)) 4hen firms uy or uild facilities in foreign countries they are engaging in: A) foreign portfolio in!estment. B) international law rea&ing. C) foreign direct in!estment. D) e#porting. $+) 4hen a firm uys stoc&s or onds issued in another country they are engaging in: A) foreign portfolio in!estment. B) cheating on domestic ta#es. C) foreign direct in!estment. D)

importing.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter : Consumer Choice and Beha%iora! Economics

1) %conomists assume the goal of consumers is to: A) do as little wor& as possi le to sur!i!e. B) ma&e themsel!es as well off as possi le. C) e#pend all their income. D) consume as much as possi le. 2) 9arginal utility is: A) the total satisfaction recei!ed from consuming a good or ser!ice. B) the a!erage satisfaction recei!ed from consuming a good or ser!ice. C) the e#tra satisfaction recei!ed from consuming one unit of a good or ser!ice. D) none of these descri es marginal utility. ") As a consumer consumes more and more of a good or ser!ice in a particular time period' e!entually marginal utility: A) rises. B) is constant. C)

declines. D) fluctuates. $) ,f a consumer recei!es 2/ units of utility from consuming two units of a good and for consuming three units this consumer recei!es 2( units of utility' the marginal utility of consuming the third unit is: A) $( utility units. B) 2( utility units. C) 2/ utility units. D) ( utility units. () ,f a consumer recei!es 2/ units of utility from consuming two units of a good and from consuming three units this consumer recei!es 2( units of utility' the marginal utility of consuming the second unit is: A) 2( utility units. B) 2/ utility units. C) ( utility units. D) un&nown as more information is needed to determine the answer. )) ,f a consumer recei!es 22 units of marginal utility for consuming the first unit of a good' 2/ units from consuming the second' and 1( from the third' the total utility of consuming the three units is: A) (+ utility units. B)

"( utility units. C) 1( utility units. D) un&nown as more information is needed to determine the answer. +) Total utility: A) always increases as a person consumes more and more of a good. B) has a constant rate of increase as a person consumes more and more of a good. C) is e1ual to the sum of the marginal utilities of all units consumed. D) is negati!e when marginal utility is declining. 3) ,f' as a person consumes more and more of a good' each additional unit adds less satisfaction than the pre!ious unit consumed' we are seeing the wor&ing of the law of: A) demand. B) supply. C) increasing opportunity cost. D) diminishing marginal utility. 7) 9arginal utility can e: A)

negati!e. B) 2ero. C) positi!e. D) all of these. 1/) ,f' when you consume another unit of a good' your marginal utility is 2ero' then: A) you want more of the good. B) your total utility has pea&ed. C) you ha!e not yet reached the point of diminishing marginal utility. D) you should consume less of this good. 11) Consumers ha!e to ma&e tradeoffs in deciding what to consume ecause: A) they can only consume so much each day. B) there is not enough time to consume e!erything. C) they are limited y a udget constraint. D) there is not enough of all goods produced. 12) ,f your total satisfaction increases when you consume another unit' your marginal utility must e: A)

increasing. B) decreasing. C) negati!e. D) positi!e. 1") ,f you ate too many pieces of pie and got sic&' then at least the last piece of pie: A) had constant marginal utility. B) had constant total utility. C) had negati!e marginal utility. D) had positi!e marginal utility. 1$) Total utility typically increases at a decreasing rate as a consumer consumes more of one good or ser!ice' so marginal utility must: A) remains constant. B) increase also. C) decrease. D) e negati!e. 1() Something has utility for a consumer if it:

A) is scarce. B) has a high price. C) is something e!eryone else wants. D) generates en0oyment or satisfaction. 1)) 4hen marginal utility is 2ero' total utility is: A) ma#imi2ed. B) decreasing. C) negati!e. D) increasing. 1+) Consumers ma#imi2e total utility within their udget constraint y: A) uying the cheapest goods they can find. B) uying whate!er they li&e the est. C) uying the good with the largest marginal utility per dollar spent. D) uying the same dollar amount of each good. 13)

,f a consumer always uys goods rationally' then: A) the total utilities of the different goods consumed will e e1ual. B) the a!erage utilities of the different goods consumed will e e1ual. C) the marginal utility per dollar spent on all goods will e e1ual. D) the marginal utility of the different goods consumed will e e1ual. 17) Suppose Foe is ma#imi2ing total utility within his udget constraint and the price of 0eans is .2( and yielded 1// units of e#tra satisfaction. ,f the price of a shirt is .2/' then the e#tra satisfaction recei!ed for the last shirt must e: A) 2/// units of utility. B) (// units of utility. C) 1// units of utility. D) 3/ units of utility. 2/) ,f a consumer is ma#imi2ing total utility y uying goods D and E' for a consumer to uy more of good D: A) the consumer is ma#imi2ing so nothing can change the consumption of D. B) the price of D has to fall. C) the price of D has to rise. D) the price of E has to fall.

21) 9ost would prefer to dri!e a lu#ury car that has all the options' ut more people uy less e#pensi!e cars e!en though they could afford the lu#ury car ecause: A) car uyers are irrational. B) the total utility of less e#pensi!e cars is greater than lu#ury cars. C) the marginal utility per dollar spent on the less e#pensi!e car is higher than on lu#ury cars. D) none of these can e#plain this. 22) ,f a consumer is purchasing good D at .( and gets 2( units of marginal utility from the last unit and good E at ." and gets 12 units of marginal utility from the last unit' the consumer: A) is ma#imi2ing total utility and does not want to change their consumption of good D or good E. B) wants to consume more of good D and less of good E. C) wants to consume more of good E and less of good D. D) wants to consume less of oth good D and good E. 2") ,f a consumer is o taining nine units of utility per dollar spent on apples and si# units of utility per dollar spent on oranges' then the consumer: A) is ma#imi2ing total utility. B) wants to uy more apples and less oranges. C)

wants to uy more oranges and less apples. D) wants to uy less oranges and less apples. 2$) ,f a consumer is utility ma#imi2ing and the price of one good falls' what has happened to the marginal utility di!ided y the price of the good and what should the consumer do5 A) 9?N* has increased and the consumer should uy more of this good. B) 9?N* has increased and the consumer should uy less of this good. C) 9?N* has decreased and the consumer should uy more of this good. D) 9?N* has decreased and the consumer should uy less of this good. 2() 4hen the price of a normal good falls causing your purchasing power to rise' you uy more of it due to: A) the su stitution effect. B) the income effect. C) the deadweight loss effect. D) the elasticity effect. 2)) 4hen the price of a good falls and you uy more of it ecause it is relati!ely less e#pensi!e' this is called: A) the su stitution effect. B) the income effect.

C) the deadweight loss effect. D) the elasticity effect. 2+) ,f a normal good you are consuming has its price increase' you will uy less of it ecause: A) the negati!e income effect is greater than the positi!e su stitution effect. B) the positi!e income and su stitution effects wor& together. C) the negati!e income and su stitution effects wor& together. D) the positi!e income effect is smaller than and the negati!e su stitution effect. 23) ,f an inferior good you are consuming has its price increase' you will uy less of it ecause: A) the negati!e income effect is smaller than the positi!e su stitution effect. B) the positi!e income and su stitution effects wor& together. C) the negati!e income and su stitution effects wor& together. D) the positi!e income effect is larger than and the negati!e su stitution effect. 27) 4hen price decreases for a normal good' the income and su stitution effects: A) wor& in the same direction to increase 1uantity demanded. B)

wor& in the same direction to decrease 1uantity demanded. C) wor& in opposite directions and 1uantity demanded increases. D) wor& in opposite directions and 1uantity demanded decreases. "/) A Aiffen good: A) must e an inferior good. B) is one where the positi!e income effect of a price increase is larger than the negati!e su stitution effect. C) is one where uyers increase 1uantity demanded when price increases. D) all of the a o!e. "1) To e a Aiffen good a good must e: A) a normal good. B) inferior with an income effect that is larger than the opposing su stitution effect. C) inferior with an income effect that is smaller than the opposing su stitution effect. D) inferior with an income effect and a su stitution effect wor&ing in the same direction. "2) A networ& e#ternality is when: A) there is production cost sa!ings from eing networ&ed with suppliers. B)

there is production cost sa!ings from eing networ&ed with uyers. C) the utility of a good is affected y how many others use the good. D) the utility of a good is affected y cele rities who use the good. "") A good is path dependent' when: A) consumers get utility from consuming goods that others are consuming such as restaurants. B) the first technology that was adopted has an ad!antage o!er a etter technology that came later. C) people who mo!e location follow the path of people who mo!ed efore them. D) it can only e used in one way. "$) Business firms might raise prices only if costs ha!e increased ut not when demand has increased ecause: A) demand changes are hard to determine while cost changes are pro!ided y suppliers. B) fear that the pu lic may demand the go!ernment put a price ceiling on the product. C) fear that uyers will consider demand=caused price increases as unfair and uy elsewhere. D) cost changes are usually permanent while demand changes are often temporary fluctuations. "() Sun& costs: A) are costs that ha!e already een paid and cannot e recaptured.

B) are important for optimal decision ma&ing. C) are costs associated with repairing something you already own. D) are costs that firms sin& into mar&eting. ")) 4hat is held constant along one indifference cur!e5 A) *rices of goods B) 9arginal rate of su stitution C) 9arginal utility D) Total utility "+) ,ndifference cur!es intersect: A) at e1uili rium. B) the consumer optimum. C) where the marginal rate of su stitution for each indifference cur!e is e1ual. D) ne!er. "3) The indifference cur!e shows what a consumer: A)

wants. B) can uy. C) will uy. D) can>t uy. "7) The udget constraint on an indifference cur!e graph shows what a consumer: A) wants. B) can uy. C) will uy. D) has ought. $/) The rational consumer will uy that com ination of the two goods on an indifference cur!e graph that is where: A) the indifference cur!e intersects the hori2ontal a#is. B) the indifference cur!e intersects the !ertical a#is. C) an indifference cur!e is tangent to the udget constraint. D) the udget constraint intersects one of the a#es. $1) 4hen the price of one of the goods on an indifference cur!e graph increases while the other remains constant' the consumer>s:

A) indifference cur!e ecomes more conca!e away from the origin. B) indifference cur!e ecomes straighter. C) udget constraint mo!es away from the origin on the a#is of the good whose price has increased. D) udget constraint mo!es in towards the origin on the a#is of the good whose price has increased. $2) ;n an indifference cur!eN udget constraint graph' the su stitution effect of a price change for one good is shown as a mo!ement: A) along one indifference cur!e. B) from one indifference cur!e to another one. C) from one e1uili rium point to another one. D) along one udget constraint. $") ;n an indifference cur!eN udget constraint graph' the income effect of a price change of one good is shown as a mo!ement: A) along one indifference cur!e. B) from one indifference cur!e to another. C) from one e1uili rium point to another. D) along one udget constraint.

$$) An increase in a consumer>s income is shown on an indifference cur!eN udget constraint graph y: A) indifference cur!es all shifting inward. B) indifference cur!es all shifting outward. C) udget constraint shifting inward. D) udget constraint shifting outward. *e#er to i'ure :+1 #or the ,uestions be!o-+

6igure 7.1 $()

,n figure 7.1' a change in income is shown in: A) panel a. B) panel . C) panel c. D) none of the a o!e. $)) ,n figure 7.1' a change in the price of candy is shown in: A) panel a. B) panel . C) panel c. D) none of the a o!e. $+) ,n figure 7.1' eginning with the lower le!el of utility' an increase in the price of popcorn is shown in: A) panel a. B) panel . C) panel c. D) none of the a o!e.

$3) ,n figure 7.1 eginning with the lower le!el of utility' panel c shows: A) an increase in income. B) an increase in the price of candy. C) a decrease in the price of candy. D) none of the a o!e.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 1; Techno!o')$ 0roduction$ and Costs

1) The a!erage total cost of production is the: A) e#tra cost re1uired to produce one more unit. B) total cost of production. C) total cost of production di!ided y the le!el of output. D) total cost of production multiplied times the le!el of output. 2) Among the potential sources of an ad!ance in technology for a producing firm is: A) etter trained wor&ers. B) more efficient physical capital. C)

higher s&ill le!el of managers. D) all of the a o!e. ") The short run is: A) one day. B) one wee&. C) si# months. D) as long it ta&es a particular firm to change its plant capacity. $) A factor of production that is not fi#ed in the short run is: A) physical capital. B) technology. C) la or. D) land. () A characteristic of the long run is: A) there are no fi#ed inputs. B) all inputs can e !aried. C)

plant capacity can e increased or decreased. D) all of the a o!e. )) %conomics cost of production differ from those in accounting in that: A) economics includes e#penditures for hired resources while accounting does not. B) economics adds the opportunity cost of a firm using its own resources. C) accounting includes e#penditures for hired resources while economics does not. D) accounting costs are always larger than economic costs. +) 4hich of the following is an implicit cost of production5 A) ,nterest paid on a loan to a an&. B) 4ages paid to la or plus the cost of carrying enefits for wor&ers. C) The utility ill paid to water' electricity' and natural gas companies. D) :ent that could ha!e een earned on a uilding owned and used y the firm. 3) ,mplicit costs of production are also called: A) o!erhead. B) !aria le costs.

C) direct costs. D) opportunity costs. 7) A factor of production that generally is fi#ed in the short run is: A) raw materials. B) la or. C) a uilding. D) water. 1/) The relationship etween different amounts of inputs and the resulting le!el of output is a: A) total cost schedule. B) production possi ilities frontier. C) production function. D) production 1uota. 11) ,f the firm is producing nothing in the short run' then: A) total costs are 2ero. B)

!aria le costs are low ut positi!e. C) marginal costs are negati!e. D) fi#ed costs are positi!e. 12) As a firm hires more la or in the short run' the: A) le!el of total product stays constant. B) output per wor&er rises. C) e#tra output of another wor&er may rise at first' ut e!entually must fall. D) costs of production are increasing at a fi#ed rate per unit of output. *e#er to i'ure 1;+1 #or the ,uestions be!o-+

6igure 1/.1 1") ,n figure 1/.1' diminishing returns to la or set in after: A) <1. B)

<2. C) <". D) none of the a o!e. 1$) ,n figure 1/.1' short run output is ma#imi2ed at: A) <1. B) <2. C) <". D) none of the a o!e. 1() ,n figure 1/.1' A* of la or declines after <2 ecause: A) 9* of la or is elow A* of la or. B) 9* of la or is falling. C) 9* of la or is negati!e. D) 9* of la or is positi!e. 1)) ,f four wor&ers can produce 13 chairs a day and fi!e can produce 2/ chairs a day' the marginal product of the fifth wor&er is: A)

four chairs. B) fi!e chairs. C) two chairs. D) "3 chairs. 1+) The short run marginal product of la or increasing at first and then falling is an e#ample of the law of: A) demand. B) supply. C) diminishing marginal utility. D) diminishing returns. 13) The reason the marginal product of la or in the short run increases at first and then falls is ecause: A) as more la or is hired' they are not as s&illed as the first ones hired. B) there are fewer opportunities for di!ision of la or and speciali2ation. C) the management is inefficient. D) the e#tra wor&ers ha!e usy wor& piled on them. 17) ,f 11 wor&ers can produce a total of ($ units of a product and another wor&er has a marginal product of si#' then the a!erage product of 12 wor&ers is: A)

)/. B) ($. C) $3. D) (. 2/) ,f another wor&er adds nine units of output to a group of wor&ers who had an a!erage product of se!en units' then the a!erage product of la or: A) will remain the same. B) will increase. C) will decrease. D) and what will happen to it can not e determined. 21) ,f a!erage product is decreasing' we &now that: A) total product is negati!e. B) marginal product is negati!e. C) marginal product is smaller than a!erage product. D) marginal product is at its positi!e. 22)

,f all we &now is all wor&ers> marginal product' then total and a!erage product can e found y: A) di!iding marginal costs y the num er of wor&ers. B) multiplying the a!erage marginal product times the num er of wor&ers. C) summing the marginal !alues to find the total and multiplying it times the num er of wor&ers to get the a!erage. D) summing the marginal !alues to find the total and di!iding it y the num er of wor&ers to get the a!erage. 2") ,f we &now that marginal product is e1ual to a!erage product' then: A) a!erage product is at a ma#imum. B) total product is at a ma#imum. C) marginal product is at a ma#imum. D) a!erage product must e falling. 2$) 9arginal cost is ?=shaped ecause of the: A) law of demand. B) law of diminishing marginal utility. C) law of diminishing returns. D) law of increasing costs.

2() A!erage total cost is e1ual to: A) a!erage fi#ed costs minus a!erage !aria le costs. B) total costs di!ided y the le!el of output. C) marginal costs plus !aria le costs. D) total costs di!ided y the num er of wor&ers. *e#er to i'ure 1;+" #or the ,uestions be!o-+

6igure 1/.2 2)) ,n figure 1/.2' the difference etween a!erage total costs and a!erage !aria le costs is: A) a!erage fi#ed costs. B) marginal costs. C) fi#ed costs. D)

sun& costs. 2+) ,n figure 1/.2' a!erage !aria le costs approach a!erage total costs as output rises ecause: A) marginal costs are a o!e a!erage !aria le costs. B) a!erage fi#ed costs are falling. C) fi#ed costs are falling. D) total costs are falling. 23) ,n the long run: A) all inputs in production are !aria le. B) there are no fi#ed costs. C) total costs e1ual !aria le costs. D) all of these are correct. 27) <ong run costs are ?=shaped ecause: A) of the law of demand. B) of the law of diminishing returns. C) of economies and diseconomies of scale. D)

of the law of supply. "/) ,f a!erage total cost is .(/ and a!erage fi#ed cost is .1( when output is 2/ units' then the firm>s total !aria le cost at that le!el of output is: A) .1'///. B) .+//. C) ."//. D) impossi le to determine without additional information. "1) ,f a!erage total cost is .(/ and a!erage fi#ed cost is .1( when output is 2/ units' then the firm>s a!erage !aria le cost at that le!el of output is: A) .$(. B) ."(. C) ."/. D) impossi le to determine without additional information. "2) 4hen the a!erage total cost is .1)' the le!el of total cost is .3//' then the num er of units the firm is producing is: A) impossi le to determined with the information gi!en. B) +3$. C)

12'3//. D) (/. "") ,f a firm dou les all its inputs in the long run and it finds its a!erage cost of production has decreased' then it has: A) diminishing returns. B) economies of scale. C) diseconomies of scale. D) declining fi#ed costs. "$) %conomies of scale e#ist ecause as a firm increases its si2e in the long run: A) the firm can afford more sophisticated technology in production. B) la or and management can speciali2e their acti!ities more. C) as a larger input uyer the firm can purchase inputs at a lower per unit cost. D) all of these. "() ,n natural monopolies such as the generation of electricity' long=run a!erage costs continue to decrease as the plant si2e gets larger' ecause: A) diminishing returns are not present. B) diseconomies of scale are !ery minor ut economies of scale continue.

C) someone must ha!e made a mista&e at lower le!els of output. D) there are no fi#ed costs. ")) 4hen a firm>s long=run a!erage cost cur!e is hori2ontal for a range of output' then in that range the firm has: A) increasing returns to scale. B) constant returns to scale. C) decreasing returns to scale. D) constant a!erage fi#ed costs. "+) An iso1uant shows: A) the com inations of two goods that yield the same total satisfaction. B) the com inations of two inputs that yield the same total product. C) the com inations of two inputs that cost the same total 1uantity of money. D) the com ination of two goods that cost the same amount of money. "3) The typical shape of iso1uants is: A) conca!e towards the origin. B)

con!e# towards the origin. C) straight downsloping line. D) straight upsloping line. "7) As a firm su stitutes la or for capital' more la or is re1uired to e1ual one less unit of capital ecause: A) capital is always more producti!e than la or. B) as less capital is used' diminishing returns to la or ecome more pronounced. C) diseconomies of scale. D) the price of each input changes. $/) An isocost line shows: A) all the possi le com inations of two inputs the firm can use. B) all the possi le com inations of two inputs the firm can use that ha!e the same total cost. C) all the possi le com inations of two inputs the firm can use that ha!e the same marginal cost. D) all the possi le com inations of two inputs with constant returns to scale. $1) The position of the isocost line is determined y the: A) prices of the two inputs. B)

producti!ities of the two inputs. C) le!el of total cost. D) price of the product. $2) ;n an iso1uantNisocost graph the least cost com ination of producing a gi!en output is: A) any point on the iso1uant cur!e. B) any point on the isocost cur!e. C) the tangency point etween the iso1uant cur!e and the isocost line. D) only on one of the a#es of the graph. $") Different economies might use different com inations of inputs li&e la or and capital to produce the same goods ecause of: A) different technologies. B) differences in the producti!ity of the inputs. C) differences in the prices of the inputs. D) all of the a o!e. $$) ,f la or is the hori2ontal a#is input and physical capital is the !ertical a#is input' then at the least costs output: A)

the marginal rate of technical su stitution is e1ual to the wage rate di!ided y the cost of capital. B) the marginal rate of technical su stitution is multiplied times the wage rate di!ided y the cost of capital. C) the marginal rate of technical su stitution is di!ided y the wage rate multiplied times the cost of capital. D) the marginal rate of technical su stitution is e1ual to the amount of capital di!ided y the amount of la or. $() ,f the amount of la or eing used has a marginal product of 12 units of output per wor&er at a wage rate of .) per wor&er and the current capital amount eing used has a marginal product of 2/ units per machine' then for this to e a least cost com ination of inputs the cost of capital must e: A) .2. B) .1/. C) .2/. D) ,mpossi le to determine with the information gi!en.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 11 irms in 0er#ect!) Competiti%e Markets

1) Among the characteristics of a perfectly competiti!e mar&et structure is: A) a !ery large num er of firms that are small compared to the mar&et. B) all firms sell identical products. C) there are no restrictions to entry y new firms. D) all of the a o!e.

2) Among the characteristics of a monopolistically competiti!e mar&et structure are: A) a large num er of independently acting small sellers. B) all sellers sell products that are differentiated rather than identical. C) there are no arriers to entry of new firms. D) all of the a o!e. ") Among the characteristics of an oligopoly mar&et structure is: A) !ery few sellers. B) a uni1ue product. C) it is easy for new firms to enter the industry. D) all of the a o!e. $) Among the characteristics of a monopoly mar&et structure is: A) there is only one seller in the mar&et. B) entry of new sellers is completely loc&ed. C) the product is uni1ue. D)

all of the a o!e. () The price of a seller>s product in perfect competition is determined y: A) the indi!idual seller. B) a few of the sellers. C) mar&et demand and mar&et supply. D) the indi!idual demander. )) Both indi!idual uyers and sellers in perfect competition: A) can influence the mar&et price y their own indi!idual actions. B) can influence the mar&et price y 0oining with a few of their competitors. C) ha!e to ta&e the mar&et price as a gi!en. D) ha!e the mar&et price dictated to them y go!ernment. +) Both uyers and sellers are price ta&ers in a perfectly competiti!e mar&et ecause: A) the price is determined y go!ernment inter!ention and dictated to uyers and sellers. B) each uyer and seller &nows it is illegal to conspire to affect price. C) oth uyers and sellers in a perfectly competiti!e mar&et are concerned for the welfare of others. D)

each uyer and seller is too small relati!e to others to independently affect the mar&et price. 3) The demand for an indi!idual seller>s product in perfect competition is: A) the same as mar&et demand. B) downward sloping. C) !ertical. D) hori2ontal. 7) The demand for each seller>s product in perfect competition is hori2ontal at the mar&et price ecause: A) each seller is too small to affect mar&et price. B) the price is set y the go!ernment. C) all the sellers get together and set the price. D) all the demanders get together and set the price. 1/) ,f the mar&et price is .2(' the a!erage re!enue of selling fi!e units is: A) .12(. B) .2(. C) .(.

D) .12.(/. 11) ,f the mar&et price is .2(' the total re!enue of selling fi!e units is: A) .12(. B) .2(. C) .(. D) .)2(. 12) ,f the mar&et price is .2( in a competiti!e mar&et' the marginal re!enue from selling the fifth unit is: A) .12(. B) .2(. C) .(. D) .12.(/. 1") 4hich of the following relationships is B;T present for a firm in perfect competition5 A) *rofit e1uals total re!enue minus total cost. B) *rice e1uals a!erage re!enue. C)

A!erage re!enue is greater than marginal re!enue. D) 9arginal re!enue e1uals the change in total re!enue of selling one more unit. 1$) 6or a perfectly competiti!e firm' at profit ma#imi2ation: A) mar&et price e1uals marginal cost. B) total re!enue minus total cost is ma#imi2ed. C) marginal re!enue e1uals marginal cost. D) all of the a o!e. 1() 6or a perfectly competiti!e firm' which of the following is B;T true at profit ma#imi2ation5 A) 9ar&et price is greater than marginal cost. B) 9arginal re!enue e1uals marginal cost. C) Total re!enue minus total cost is ma#imi2ed. D) *rice e1uals marginal cost. 1)) ,f a perfectly competiti!e seller is producing at an output where price is .11 and the marginal cost is .1$.($' then to ma#imi2e profits the firm should: A) continue producing at the current output. B) produce a larger le!el of output.

C) produce a smaller le!el of output. D) not enough information gi!en to answer the 1uestion. 1+) ,f a perfectly competiti!e seller is producing at an output where price is .11$ and the marginal cost is .11$' what should the seller do to ma#imi2e profits5 A) Continue to produce the current output. B) *roduce a smaller output. C) *roduce a larger output. D) Bot enough information is gi!en to answer the 1uestion. 13) ,n perfect competition: A) the mar&et demand and the indi!idual>s demand are identical. B) the mar&et demand is perfectly inelastic while demand for an indi!idual seller>s product is perfectly elastic. C) the mar&et demand is perfectly elastic while demand for an indi!idual seller>s product is perfectly inelastic. D) the mar&et demand is downsloping while demand for an indi!idual seller>s product is perfectly elastic. 17) A !ery large num er of small sellers who sell identical products implies: A) a multitude of !astly different selling prices. B)

downward sloping demand for each seller>s product. C) the ina ility of one seller to influence price. D) chaos in the mar&et. *e#er to i'ure 11+1 #or the ,uestions be!o-+

6igure 11.1 2/) At price *1' the firm in figure 11.1 would produce: A) L". B) L(. C) L). D) 2ero. 21) At price *2' the firm in figure 11.1 would produce: A)

L1. B) L(. C) L). D) 2ero. 22) At price *"' the firm in figure 11.1 would produce: A) L(. B) L). C) L+. D) L$. 2") At price *$' the firm in figure 11.1 would produce: A) L2. B) L+. C) L3. D) L7. 2$) At price *1' the firm in figure 11.1 would: A)

lose fi#ed costs. B) lose more than fi#ed costs. C) lose less than fi#ed costs. D) rea& e!en. 2() At price *2' the firm in figure 11.1 would: A) lose fi#ed costs. B) lose more than fi#ed costs. C) lose less than fi#ed costs. D) rea& e!en. 2)) At price *"' the firm in figure 11.1 would: A) suffer a loss e1ual to fi#ed costs. B) ma&e a profit. C) suffer a loss less than fi#ed costs. D) rea& e!en. 2+) At price *$' the firm in figure 11.1 would:

A) suffer a loss e1ual to fi#ed costs. B) ma&e a profit. C) suffer a loss less than fi#ed costs. D) rea& e!en. 23) At price *$ in the long run' the industry including the firm in figure 11.1 would: A) ha!e entry of new firms. B) ha!e e#it of some e#isting firms. C) remain the same si2e. D) cease to e#ist. 27) At price *" in the long run' the industry including the firm in figure 11.1 would: A) ha!e entry of new firms. B) ha!e e#it of some e#isting firms. C) remain the same si2e. D) cease to e#ists. "/)

At price *2 in the long run' the industry including the firm in figure 11.1 would: A) ha!e entry of new firms. B) ha!e e#it of some e#isting firms. C) remain the same si2e. D) cease to e#ists. "1) An indi!idual seller in perfect competition will not sell at a price higher than the mar&et price ecause: A) the seller would not e a le to sell anything. B) 1uantity demanded would e 2ero. C) uyers would uy from other sellers. D) of all of these reasons. "2) An e#ample of a perfectly competiti!e industry is: A) wheat production. B) steel production. C) electricity production. D) airplane production.

"") The total profit of a perfectly competiti!e firm can e calculated as: A) total re!enue minus total cost. B) a!erage profit per unit times 1uantity sold. C) price minus a!erage total cost times 1uantity sold. D) all of the a o!e. "$) ,f a perfectly competiti!e firm>s price is less than a!erage total cost ut greater than a!erage !aria le cost' the firm: A) is earning a profit. B) should shut down. C) is incurring a loss. D) is rea&ing e!en. "() @ow are sun& costs and fi#ed costs related5 A) They are not related in any way. B) Sun& costs cannot e reco!ered and fi#ed costs can e a!oided y shutting down. C) ,n the short run they are e1ual to each other. D)

,n the long run they e1ual each other. ")) A perfectly competiti!e firm>s supply cur!e is: A) its marginal cost cur!e. B) its marginal cost cur!e a o!e minimum a!erage total cost. C) its marginal cost cur!e a o!e minimum a!erage !aria le cost. D) its marginal cost cur!e a o!e the minimum of a!erage fi#ed cost. "+) A perfectly competiti!e firm rea&s e!en at a price: A) e1ual to minimum a!erage total cost. B) a o!e minimum a!erage total cost. C) e1ual to minimum a!erage !aria le cost. D) e1ual to minimum a!erage fi#ed costs. "3) A perfectly competiti!e firm earns a profit when: A) price is e1ual to minimum a!erage total cost. B) price is a o!e minimum a!erage total cost. C) price is e1ual to minimum a!erage !aria le cost. D)

price is e1ual to minimum a!erage fi#ed costs. "7) ,f a typical firm in a perfectly competiti!e industry is earning profits' then: A) all firms will continue to earn profits. B) new firms will enter in the long run causing mar&et supply to decrease and mar&et price to rise increasing profits. C) new firms will enter in the long run causing mar&et supply to increase and mar&et price to fall decreasing profits. D) the num er of firms in the industry will remain constant in the long run. $/) ,f a typical firm in a perfectly competiti!e industry is incurring losses' then: A) all firms will continue to lose money. B) some firms will e#it in the long run causing mar&et supply to decrease and mar&et price to rise increasing profits for the remaining firms. C) some firms will e#it in the long run causing mar&et supply to decrease and mar&et price to fall increasing losses for the remaining firms. D) some firms will enter in the long run causing mar&et supply to increase and mar&et price to rise increasing profit for all firms. $1) A perfectly competiti!e industry will e in long=run e1uili rium when: A) no firms are lea!ing or entering the industry. B) the typical firm is 0ust rea&ing e!en in terms of economic profit. C)

the mar&et price is e1ual to the minimum point of the typical firm>s long run a!erage total cost cur!e. D) all of the a o!e. $2) ,f a perfectly competiti!e industry has new firms entering in the long run then: A) the typical firm must e earning economic profit in the short run. B) the typical firm must e earning economic profit in the long run. C) the typical firm must e rea&ing e!en in the short run. D) the typical firm must e producing too little of the product. $") An industry>s long=run supply cur!e shows: A) the relationship in the long run etween mar&et price and 1uantity supplied. B) how the go!ernment determines the price of the product. C) how a!erage producti!ity is changing. D) all of these. $$) ,f' as the industry e#pands' a competiti!e industry can supply larger 1uantities at the same long=run mar&et price' it is: A) a constant=cost industry. B) an increasing=cost industry. C)

a decreasing=cost industry. D) a fi#ed=cost industry. $() The perfectly competiti!e mar&et structure enefits consumers ecause: A) firms produce goods at the lowest possi le price in the long run. B) firms are forced y competiti!e pressure to e as efficient as possi le. C) firms are compelled to e producti!ely efficient. D) all of the a o!e. $)) A perfectly competiti!e industry achie!es allocati!e efficiency ecause: A) goods and ser!ices are produced at the lowest possi le cost. B) goods and ser!ices are produced up to the point where the last unit pro!ides a marginal enefit to consumers e1ual to the marginal cost of producing it. C) it produces where mar&et price e1uals marginal production cost. D) all of the a o!e. $+) ,n long=run competiti!e e1uili rium' which is B;T found5 A) %fficient' low=cost production at the minimum efficient scale. B)

9arginal enefits to society e1uals the marginal cost of production. C) 6irms earning economic profit. D) *roduction at minimum long=run a!erage cost point.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 1" Monopo!istic Competition: The Competiti%e Mode! in a More *ea!istic (ettin'
1) The &ey characteristics of a monopolistically competiti!e mar&et structure include: A) many' small' independently acting sellers. B) all sellers sell a differentiated product. C) no arriers to entry of new ri!als. D) all of these. 2) The &ey characteristics of a monopolistically competiti!e mar&et structure include: A) few sellers. B) sellers selling similar ut differentiated products. C) high arriers to entry . D) all of these. ") 4hat type of demand does a monopolistically competiti!e firm face5 A)

@ori2ontal B) -ertical C) Downward sloping D) ?pward sloping $) ,f a monopolistically competiti!e firm cuts its price from .1/ where it sold 2( units to .7 and sells fi!e more units of output' its marginal re!enue per unit of output is: A) .2+/. B) .2.(/ C) .2/. D) .$. () ,f a monopolistically competiti!e firm cuts its price from .1/ where it sold 2( units to .7 and sells fi!e more units of output' its marginal re!enue is: A) .2+/. B) .2.(/. C) .2/. D) .$. ))

9onopolistic competition has: A) many sellers who each face a downsloping demand cur!e. B) a few sellers who each face a downsloping demand cur!e. C) only one seller who faces a downsloping demand cur!e. D) many sellers who each face a perfectly elastic demand cur!e. +) To ma#imi2e profits' a monopolistically competiti!e firm would produce the output where: A) price e1uals a!erage total cost. B) marginal re!enue e1uals marginal cost. C) price e1uals marginal cost. D) marginal re!enue e1uals price. 3) ,f a monopolistically competiti!e firm is producing at an output where marginal re!enue is .2" and marginal cost is .17' then to ma#imi2e profits the firm will: A) continue to produce the same 1uantity. B) increase output. C) decrease output. D) shutdown.

7) ,f a monopolistically competiti!e firm is producing at an output where marginal re!enue is .111.11 and marginal cost is .113' then to ma#imi2e profits the firm will: A) continue to produce the same 1uantity. B) increase output. C) decrease output. D) shutdown. 1/) ,f a monopolistically competiti!e firm is producing at an output where marginal re!enue is .12 and marginal cost is .12.' then to ma#imi2e profits this firm will: A) continue to produce the same 1uantity. B) increase output. C) decrease output. D) shutdown. 11) ,f a monopolistically competiti!e firm is producing )) units of output where marginal re!enue e1uals marginal cost at a price of .13 and a!erage total cost at that output is .1).((' then its total profit is: A) .1'133. B) .1'/72."/. C)

.7(.+/. D) .1.$(. 12) ,f a monopolistically competiti!e firm is producing (/ units of output where marginal cost e1uals marginal re!enue' total cost is .1')+$ and total re!enue is .2'///' its a!erage profit is: A) ."2). B) .$/. C) .).(2. D) impossi le to determine without additional information. 1") A monopolistically competiti!e firm ma#imi2ing profits will produce at a price that is: A) e1ual to marginal cost. B) e1ual to marginal re!enue. C) greater than marginal cost. D) less than marginal re!enue. 1$) A monopolistically competiti!e industry that earns economic profits in the short run will: A) continue to earn economic profits in the long run. B) e#perience the entry of new ri!al firms into the industry in the long run.

C) e#perience the e#it of old firms out of the industry in the long run. D) e#perience a rise in demand in the long run. 1() A monopolistically competiti!e firm that is earning profits will' in the long run' e#perience: A) new ri!als entering the mar&et. B) demand decreases. C) demand for the firm>s product ecomes more elastic. D) all of the a o!e. 1)) A monopolistically competiti!e firm earning profits in the short run will find the demand for its product decreasing in the long run ecause: A) customers ha!e tired of the firm>s product. B) consumers> incomes ha!e fallen. C) some of its customers ha!e switched purchases to new entrants into the mar&et. D) its costs and price has risen. 1+) A monopolistically competiti!e firm earning profits in the short run will find the demand for its product ecoming more elastic in the long run ecause: A) more su stitutes are a!aila le ecause new ri!als ha!e entered the mar&et.

B) the price of the product relati!e to uyers> incomes has increased. C) consumers ha!e tired of the firm>s product. D) consumers incomes ha!e fallen. 13) A monopolistically competiti!e firm earning profits in the short run will find the demand for its product decreasing and ecoming more elastic in the long run as new firms mo!e into the industry until: A) the original firm is dri!en into an&ruptcy. B) the firm>s demand cur!e is perfectly elastic. C) the firm>s demand cur!e is tangent to its a!erage total cost cur!e. D) the firm e#its the mar&et. 17) ,n the long run' a typical monopolistically competiti!e firm will: A) earn an economic profit. B) rea&e!en. C) incur an economic loss. D) shut down. 2/) ,f a monopolistically competiti!e firm rea&s e!en in an economic sense' the entrepreneur: A)

should e#it the industry. B) is earning as much in this industry as he or she could anywhere else. C) a!oids ha!ing to pay income ta#. D) none of the a o!e. 21) ,f a monopolistically competiti!e firm rea&s e!en in an economic sense' the entrepreneur: A) is earning an accounting profit and will ha!e to pay ta#es on that profit. B) is earning 2ero accounting and economic profit. C) should e#it the industry. D) none of the a o!e. 22) ,f a typical monopolistically competiti!e firm is losing money in an economic sense' then: A) all firms will e#it the mar&et. B) as some firms lea!e' the remaining firms find the demand for their product increasing. C) as some firms lea!e' the remaining firms find the demand for their product ecomes more elastic. D) all of the a o!e happen. 2") *rofits earned y monopolistically competiti!e firms in the short run typically will decline in the long run ecause:

A) their products are of poor 1uality. B) uyers reali2e the products are less differentiated than they initially elie!ed. C) uyers tire of their products. D) of the entry of imitators. 2$) A monopolistically competiti!e firm has more control o!er the price of its product ecause: A) of entrance of new firms into the mar&et. B) it can con!ince uyers that its product is !ery similar. C) it can con!ince uyers that its product is differentiated. D) entrance of new firms is !ery difficult. 2() A ma0or difference etween monopolistically competiti!e and perfectly competiti!e mar&ets is: A) the num er of sellers. B) the degree y which mar&et demand slopes downward. C) products are not standardi2ed in monopolistic competition. D) arriers to entry. 2))

Among the characteristics that monopolistic competition and perfect competition share is: A) many' small independently acting sellers. B) low arriers to entry into the industry y new firms. C) the typical firm rea&s e!en in the long run. D) all of the a o!e. 2+) ,f uyers of a monopolistically competiti!e product feel the products of different sellers are strongly differentiated' then: A) the demand for each seller>s product is perfectly inelastic. B) the demand for each seller>s product is perfectly elastic. C) the demand for each seller>s product is relati!ely inelastic. D) the demand for each seller>s product is relati!ely elastic. 23) A monopolistically competiti!e firm can increase its profits eyond the long=run e1uili rium rea&e!en le!el y: A) continually finding ways to produce its product at a lower cost le!el. B) selling more of its product. C) mar&eting its product as similar to others in the industry. D) all of the a o!e.

27) A monopolistically competiti!e firm can con!ince uyers that its product has !alue y: A) selling the product at a lower price than ri!als do. B) differentiating its product to suit consumers> preferences. C) mar&eting its product as similar to competitors. D) loc&ing entry. "/) 4hich of the following is B;T a characteristic of long=run e1uili rium in a monopolistically competiti!e mar&et5 A) Selling price e1uals a!erage total cost. B) *roduction is at minimum a!erage total cost. C) 9arginal re!enue e1uals marginal cost. D) Selling price is greater than marginal cost. "1) @ow does the long run e1uili rium of a monopolistically competiti!e industry differ from that of a perfectly competiti!e industry5 A) ,n long=run e1uili rium in a monopolistically competiti!e firm will earn economic profits. B) ,n long=run e1uili rium in a monopolistically competiti!e firm price will e higher than the a!erage cost of production. C) ,n long=run e1uili rium in a monopolistically competiti!e firm does not use fully the plant si2e it uilt.

D) ,n long=run e1uili rium in a monopolistically competiti!e firm is allocati!ely efficient while the perfectly competiti!e firm is not. "2) ,s a monopolistically competiti!e firm producti!ely efficient5 A) ,t is B;T ecause it does not produce at minimum a!erage total cost. B) ,t is ecause it produces where marginal cost e1uals marginal re!enue. C) ,t is B;T ecause price is greater than marginal product. D) ,t is ecause price e1uals a!erage total costs. "") 6or allocati!e efficiency to hold: A) price is e1ual to marginal cost. B) price is e1ual to marginal re!enue. C) a!erage !aria le cost is minimi2ed in production. D) a!erage total cost is minimi2ed in production. *e#er to i'ure 1"+1 #or the ,uestions be!o-+

6igure 12.1 "$) The monopolistic competitor in figure 12.1 will produce: A) L1. B) L2. C) L". D) L$. "() The monopolistic competitor in figure 12.1 will charge: A) *1. B) *2. C) *". D)

*$. ")) The monopolistic competitor in figure 12.1: A) is ma&ing a profit. B) is rea&ing e!en. C) should shut down. D) is losing money ut should operate in the short run. "+) The producti!e efficient output for the monopolistic competitor in figure 12.1 is: A) L1. B) L2. C) L". D) L$. "3) Brand management: A) is pic&ing a rand name for a new product that will attract attention. B) is the efforts to maintain the differentiation of a product o!er time. C) is the efforts to reduce the cost of production. D)

is selling the right to use a rand name in a particular mar&et. "7) 4hat is the purpose of ad!ertising y a monopolistically competiti!e firm5 A) ,ncrease demand for the firm>s product. B) 9a&e the demand for the firm>s product more inelastic. C) %arn more economic profit for the firm. D) 6irms ad!ertise for all these reasons. $/) 4hat is considered y some indi!iduals to e good a out ad!ertising y monopolistically competiti!e firms5 A) Ad!ertising can act as a arrier to entry. B) Ad!ertising has a low cost. C) 6irms tend to ad!ertise their est products' so the 1uantity of ad!ertising pro!ides consumers with useful information. D) 6irms that ad!ertise ha!e lower costs of production. $1) Ad!ertising' mar&eting' and rand management are all done y monopolistically competiti!e firms in an effort to: A) satisfy uyers with the lowest possi le price. B) produce at the lowest possi le a!erage total cost le!el. C) increase demand and ma&e it more inelastic to earn a o!e rea&=e!en profits. D)

to get price to e1ual a!erage total costs. $2) An ad!antage of trademar&ing your product is: A) a trademar& differentiates your product. B) a trademar& means no one else can legally produce a similar product. C) a trademar& means your product name may ecome highly associated with the product. D) all of the a o!e. $") A disad!antage for consumers who uy a product of a monopolistically competiti!e firm is: A) they ha!e no choice in the attri utes of the product. B) they pay a price greater than the marginal cost of production. C) they ha!e no choice a out whether to uy or not. D) they pay a price greater than a!erage total cost. $$) An ad!antage to consumers from uying a product of a monopolistically competiti!e firm is: A) they are paying a price greater than marginal cost. B) they are paying for product ad!ertising. C) they can uy a product more closely suited to their tastes.

D) they can uy the same product as e!eryone else.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 1. O!i'opo!): irms in <ess Competiti%e Markets

1) An oligopoly firm is in an industry characteri2ed y: A) many independent firms. B) a small num er of independent firms. C) one firm. D) a small num er of interdependent firms. 2) A four=firm concentration ratio measures: A) the fraction of an industry>s sales accounted for y the four largest firms. B) the production of any four firms in an industry. C) how the four largest firms ecame so concentrated. D) the fraction of employment of the four largest firms in an industry. ") ;ligopolies are difficult to analy2e ecause: A) the firms are so large. B)

demand and cost cur!es do not e#ist for these types of industries. C) how oligopoly firms respond to a price change y a ri!al is uncertain. D) oligopolies are a recent de!elopment so economists ha!e not had time to de!elop models. $) An oligopoly firm>s demand cur!e is: A) identical to that of a perfect competiti!e firm. B) identical to that of a monopolistically competiti!e firm. C) !ertical on a price 1uantity diagram. D) un&nown ecause a response of firms to price changes y ri!als is uncertain. () The !alue of the four=firm concentration ratio that many economists consider indicati!e of the e#istence of an oligopoly in a particular industry is: A) anything greater than 1/ percent. B) anything greater than 2/ percent. C) anything greater than "/ percent. D) anything greater than $/ percent. )) ;ligopolies e#ist and do not attract new ri!als ecause: A)

of competition. B) of arriers to entry. C) the firms &eep profits and prices so low that no ri!als are attracted. D) all of the a o!e. +) 4hich of the following is B;T a arrier to entry5 A) ;wnership of a &ey input B) ,ndustry lowest pricing C) Ao!ernment imposed restrictions D) %conomies of scale 3) An e#ample of a arrier to entry is: A) product differentiation. B) high profits. C) go!ernment imposed restrictions. D) all of the a o!e. 7) %conomies of scale can lead to an oligopoly mar&et structure ecause: A)

if larger firms ha!e lower costs' new small entrants will not e a le to produce at the low costs achie!ed y the ig esta lished firms. B) if economies of scale are insignificant in production only a few firms are a le to produce at the low costs achie!ed y the ig esta lished firms. C) a few firms can force ri!als to produce at low le!els of output. D) a few firms can use high profits to &eep out new entrants. 1/) A reason there is more competition among restaurants than is found in large discount department stores is: A) restaurants produce a differentiate product. B) restaurants ha!e to a ide y go!ernment sanitation rules. C) restaurants do not ha!e significant economies of scale. D) restaurants ha!e more elastic demand for their product. 11) An e#ample of a go!ernment=imposed arrier is: A) economies of scale. B) the granting of a patent to a particular firm. C) one firm owning a &ey input. D) en!ironmental regulations. 12)

*atents' occupational licensing' tariffs and 1uotas are all e#amples of : A) go!ernment=imposed arriers. B) economies of scale. C) cutthroat competiti!e pricing. D) ownership of a &ey input. 1") A cartel whose mem ers adhere to the agreement is typically a le to: A) rea&e!en. B) earn large profits. C) entirely a!oid competiti!e forces. D) produce a large amount of output. 1$) Aame theory is useful in analy2ing oligopoly eha!ior ecause: A) trying to ma#imi2e profits is essentially a game in all types of mar&ets. B) interaction among a few large firms are what determines the le!el of profits. C) ad!ertising is so common among oligopoly firms. D) it e#plains why oligopolies fail to ma&e persistent profits. 1()

,f there are only two firms in a mar&et' it is &nown as a: A) competiti!e mar&et. B) duopoly. C) monopoly. D) monopolistically competiti!e mar&et. 1)) Among the characteristics of game theory are: A) rules that determine what actions are allowa le. B) payoffs that are the results of the interaction among players> strategies. C) strategies that players employ to attain their o 0ecti!es. D) all of the a o!e. 1+) ,f the painting firms in a city sign a contract outlining a pricing plan' they are in!ol!ed in: A) price competition. B) a legal form of usiness contract in the ?nited States. C) collusion. D) price regulation.

13) ,n an oligopoly mar&et: A) pricing decision of all other firms has no effect on an indi!idual firm. B) indi!idual firms pay no attention to the eha!ior of other firms. C) ad!ertising of one firm has no effect on all other firms. D) pricing decision of one firm affects all the other firms. 17) ,nterdependence of firms is most common in: A) perfectly competiti!e industries. B) monopolistic industries. C) monopolistically competiti!e industries. D) oligopolistic industries. 2/) A characteristic found only in oligopolies is: A) rea&e!en le!el of profits. B) interdependence of firms. C) independence of firms. D)

products that are slightly different. 21) An oligopolist>s usiness strategy includes all of the elow %DC%*T: A) meeting wor&er health and safety standards re1uired of all firms. B) deciding the le!el of total output of a new product. C) determining the amount of ad!ertising a new product needs. D) Setting the product>s price after considering what ri!als will do. 22) Collusion: A) is rampant in perfect competition as all firms charge the same price. B) is perfectly legal in the ?.S. C) is easiest among firms with products and costs that are !ery different. D) is more difficult the more firms there are in an industry. 2") 9em er firms of a cartel li&e ;*%C ha!e incenti!es to: A) argue for larger production 1uotas for each mem er of the cartel. B) agree to a low cartel production le!el and then produce more than their 1uota. C) a ide y their indi!idual production 1uotas. D)

support e1ual production 1uotas for each mem er. 2$) A mem er of a cartel earns more profits y: A) y producing their 1uota and selling it at the cartel price. B) y producing more than their 1uota and selling at a price lower than the cartel>s. C) y producing less than their 1uota and selling at a price higher than the cartel>s. D) y producing less than their 1uota and selling at a price e1ual to the cartel>s. 2() That ;*%C periodically meets to agree to restrict the cartel>s oil output and yet almost e!ery mem er of ;*%C produces more than their own output 1uota means ;*%C has a: A) cooperati!e e1uili rium. B) noncooperati!e e1uili rium. C) new potential entrants. D) threat of su stitute goods. 2)) A dominant strategy in a game theory analysis of oligopoly eha!ior is: A) a strategy that is the est for a firm' no matter what strategies other firms use. B) the strategy that a firm is forced into following y go!ernment policy. C)

colluding with ri!als to ma#imi2e 0oint profits. D) deciding what to do after all ri!als ha!e chosen their own strategies. 2+) A prisoners> dilemma leads to a: A) cooperati!e e1uili rium. B) noncooperati!e e1uili rium. C) competiti!e e1uili rium. D) noncompetiti!e e1uili rium. 23) A Bash e1uili rium is: A) where demand and supply intersect. B) an e#ample of a cooperati!e e1uili rium. C) where each player chooses its est strategy' gi!en the strategies chosen y the other players. D) a nondominant strategy. 27) A dominant strategy in a gaming situation is to: A) adopt the est strategy regardless of what other firms do. B) adopt the est strategy to enefit all firms. C)

collude with other firms. D) choose your strategy at random. "/) A cooperati!e e1uili rium results when firms: A) choose the est strategy regardless of what other players do. B) choose the strategy that ma#imi2es the total game payoff. C) choose the strategy that minimi2es the payoff to other players. D) choose a strategy y random chance. "1) The prisoners> dilemma results in a noncooperati!e e1uili rium ecause: A) each player had agreed efore the game started to ma#imi2e total payoff. B) each player is uncertain how other players will play the game. C) each player has a dominant strategy to play a certain way regardless of what other players do. D) none of the a o!e. "2) A decision tree is good at analy2ing: A) prisoners> dilemma games. B) repeata le games. C)

cooperati!e e1uili rium games. D) se1uential games. "") Some firms are a le to earn profits y competing with a dominant firm li&e 4almart y: A) offering the same products and ser!ices. B) aggressi!ely uying up smaller ri!als to match 4almart in its uying power. C) finding 8niches8 that 4almart does not currently occupy. D) mo!ing into other industries that sell products that do not compete with 4almart. "$) ,f a city ows to home uilders and re1uires that all home repair and addition construction e done y licensed uilders' the city has: A) set up an occupational licensing arrier to entry. B) increased the 1uality of home repair and e#pansion wor&. C) ensures that new entrants to the industry are 1ualified wor&ers. D) none of the a o!e. "() ,n the last four decades' the num er of new auto ma&ers in the world has een !ery small compared to the past ecause: A) the automo ile cannot e impro!ed upon in any way y new producers. B)

new auto ma&ers cannot o tain necessary inputs to produce new cars. C) go!ernments restrict who can produce automo iles. D) new producers cannot match the economies of scale of e#isting auto ma&ers. ")) The dominant strategy for a large ;*%C producer li&e Saudi Ara ia is: A) to &eep crude oil prices low to ensure future growth of the demand for oil. B) to &eep crude oil prices high and cooperate with other mem ers of ;*%C. C) producing as much crude oil as possi le to promote world economic growth. D) producing as little crude oil as possi le to &eep oil reser!es in the ground. "+) The dominant strategy for a small ;*%C producer li&e Bigeria is: A) producing as much crude oil as possi le to ma#imi2e its own earnings. B) producing as little crude oil as possi le to cooperate with other mem ers of ;*%C. C) producing its ;*%C determined 1uota of crude oil. D) &eeping crude oil prices as low as possi le to promote world economic growth. "3) A usiness uses a decision tree: A) whene!er a single decision must e made. B)

when se1uential decisions must e made. C) when independent decisions must e made. D) when faced with direct competition. "7) As word processing on personal computers e#panded' sales of typewriters egan to disappear due to: A) the threat of competition from new entrants. B) argaining power of suppliers. C) argaining power of uyers. D) competition from su stitute goods or ser!ices. *e#er to i'ure 1.+1 #or the ,uestions be!o-+

6igure 1".1 $/) ,n figure 1".1' the est Co&e and *epsi can do 0ointly is: A)

oth produce a high 1uantity. B) oth produce a low 1uantity. C) Co&e can produce a high 1uantity while *epsi can produce a low 1uantity. D) Co&e can produce a low 1uantity while *epsi can produce a high 1uantity. $1) ,n figure 1".1' Co&e>s dominant strategy is: A) to produce a high 1uantity. B) to produce a low 1uantity. C) to ad!ertise. D) to not ad!ertise. $2) ,n figure 1".1' *epsi>s dominant strategy is: A) to produce a high 1uantity. B) to produce a low 1uantity. C) to ad!ertise. D) to not ad!ertise.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 13 Monopo!) and &ntitrust 0o!ic)

1) A monopoly is a seller of a product: A) with many su stitutes. B) without a close su stitute. C) with a perfectly inelastic demand. D) without a a well=defined demand cur!e. 2) A monopolist is a seller who: A) has to consider the actions of other sellers. B) is small relati!e to the mar&et. C) can ignore the threat of competition from other firms. D) all of the a o!e. ") The demand cur!e for the monopolist>s product is: A) the mar&et demand for the product. B) more elastic than the mar&et demand for the product. C) more inelastic than the mar&et demand for the product. D)

undefined. $) To &eep a monopoly a firm must ha!e: A) a perfectly inelastic demand. B) an insurmounta le arrier to entry. C) marginal re!enue e1ual to demand. D) all of the a o!e. () A local electricity=generating company has a monopoly that is protected y a arrier to entry that ta&es the form of: A) control of a &ey raw material. B) networ& e#ternalities. C) economies of scale. D) none of the a o!e. )) A patent or copyright is a arrier to entry ased on: A) ownership of a &ey necessary raw material. B) large economies of scale as output increases. C) go!ernment action to protect one producer. D)

widespread networ& e#ternalities in supply of the good or ser!ice. +) A pu lic franchise is: A) ownership of a &ey necessary raw material. B) go!ernment ownership and operation of a legal monopoly. C) go!ernment designation that a pri!ate firm is the only legal producer of a good or ser!ice. D) an unregulated monopoly necessary for the pu lic good. 3) A pu lic enterprise is: A) any pri!ate usiness that is not=for=profit. B) go!ernment ownership and operation of a legal monopoly. C) go!ernment designation that a pri!ate firm is the only legal producer of a good or ser!ice. D) an unregulated monopoly necessary for the pu lic good. 7) Ao!ernments grant patents to encourage: A) research and de!elopment on new products. B) competition. C) low prices. D)

all of the a o!e. 1/) Ao!ernments grant patents to: A) compensate firms for research and de!elopment costs. B) encourage competition. C) encourage low prices. D) all of the a o!e. 11) 6or a natural monopoly to e#ist: A) a firm must continually uy up ri!als. B) a firm>s long run a!erage cost cur!e must e#hi it diseconomies of scale. C) a firm>s long run a!erage cost cur!e must e#hi it economies of scale. D) a firm must ha!e a patent. 12) A monopolist>s profit ma#imi2ing price and output is: A) where a!erage total cost are smallest. B) where total costs are the smallest relati!e to price. C) where marginal re!enue e1uals marginal cost and charging the price on mar&et demand for that output. D)

where price is as high as possi le. 1") ,f a monopolist>s price is .(/ a unit and its marginal cost is .2(' then: A) to ma#imi2e profit the firm should increase output. B) to ma#imi2e profit the firm should decrease output. C) to ma#imi2e profit the firm should continue to produce the output it is producing. D) not enough information is gi!en to say say what the firm should do to ma#imi2e profit. 1$) ,f a monopolist>s marginal re!enue is ."( a unit and its marginal cost is .2(' then: A) to ma#imi2e profit the firm should increase output. B) to ma#imi2e profit the firm should decrease output. C) to ma#imi2e profit the firm should continue to produce the output it is producing. D) not enough information is gi!en to say say what the firm should do to ma#imi2e profit. 1() ,f a monopolist>s marginal re!enue is .1( a unit and its marginal cost is .2(' then: A) to ma#imi2e profit the firm should increase output. B) to ma#imi2e profit the firm should decrease output. C) to ma#imi2e profit the firm should continue to produce the output it is producing. D)

not enough information is gi!en to say say what the firm should do to ma#imi2e profit. 1)) ,f a monopolist>s marginal re!enue is .2( a unit and its marginal cost is .2(' then: A) to ma#imi2e profit the firm should increase output. B) to ma#imi2e profit the firm should decrease output. C) to ma#imi2e profit the firm should continue to produce the output it is producing. D) not enough information is gi!en to say say what the firm should do to ma#imi2e profit. 1+) ,f a monopolist>s price is .(/ at the output where marginal re!enue e1uals marginal cost and a!erage total cost is .$"' then: A) the firms a!erage profit is .(/. B) the firms a!erage profit is .$". C) the firms a!erage profit is .+. D) Bot enough information is gi!en to answer the 1uestion. 13) ,f a monopolist>s price is .(/ at )" units of output and marginal re!enue e1uals marginal cost and a!erage total cost e1uals .$"' then the firm>s total profit is: A) ."'1(/. B) .2'+/7. C)

.$$1. D) .+. *e#er to i'ure 13+1 #or the ,uestions abo%e+

6igure 1$.1 17) To profit ma#imi2e the firm in figure 1$.1 will produce: A) L1. B) L2. C) L". D) L$. 2/) The profit ma#imi2e price for the firm in figure 1$.1 is: A) *1. B)

*2. C) *". D) *$. 21) ,f a!erage total costs are ATC1' the firm in figure 1$.1 will: A) suffer a loss. B) rea& e!en. C) ma&e a profit. D) face competition. 22) ,f a!erage total costs are ATC2' the firm in figure 1$.1 will: A) suffer a loss. B) rea& e!en. C) ma&e a profit. D) face competition. 2") ,f a!erage total costs are ATC"' the firm in figure 1$.1 will: A) suffer a loss. B)

rea& e!en. C) ma&e a profit. D) face competition. 2$) %conomic efficiency in a mar&et occurs when: A) consumer surplus is ma#imi2ed. B) producer surplus is ma#imi2ed. C) consumer surplus plus producer surplus is ma#imi2ed. D) price is as low as possi le. 2() A profit ma#imi2ing monopolist>s price is: A) e1ual to what the price would e if the mononoplist>s industry were competiti!e. B) less than what the price would e if the mononoplist>s industry were competiti!e. C) greater than what the price would e if the mononoplist>s industry were competiti!e. D) not consistently related to price if the mar&et were competiti!e. 2)) ;utput under a monopoly is: A) e1ual to what output would e if the industry were competiti!e.

B) less than what output would e if the industry were competiti!e. C) greater than what output would e if the industry were competiti!e. D) has no consistent relationship to what output would e if the industry were competiti!e. 2+) Compared to perfect competition' under monopoly: A) consumer surplus is unchanged ecause price and output is the same. B) consumer surplus is decreased ecause price is higher and output is lower. C) consumer surplus is increased ecause price is higher and output is the same. D) consumer surplus is eliminated. 23) Compared to perfect competition' a monopoly: A) increases consumer surplus. B) causes a deadweight welfare loss. C) increases total surplus. D) all of the a o!e. 27) Compared to perfect competition' with monopoly: A)

consumer surplus is reduced. B) output is reduced. C) total surplus is reduced. D) all of the a o!e. "/) :elati!e to a perfectly competiti!e mar&et' monopoly result in: A) a gain in producer surplus is e1ual to the gain in consumer surplus. B) a gain in producer surplus is e1ual to the loss in consumer surplus. C) a gain in producer surplus is less than the loss in consumer surplus. D) Bone of these occur. "1) 9ar&et power is: A) consumers a ility to determine what is produced or consumer so!ereignty. B) a firm eing a le to ad!ertise its product and succeed in selling more output. C) the a ility of a firm to sell at a lower price than ri!al sellers. D) the a ility of a firm to charge a price higher than marginal cost. "2) The type of firms that do not ha!e mar&et power are: A)

perfectly competiti!e. B) monopolistically competiti!e. C) oligopoly. D) monopolies. "") ,f a firm has mar&et power and has earned monopoly profits for some time' Foseph Schumpeter would predict: A) the go!ernment will e!entually ha!e to control these firms. B) the pu lic will get fed up and refuse to uy those products. C) new products will dri!e older products and firms with mar&et power out of the mar&et. D) all of the a o!e. "$) The Sherman Act prohi ited: A) marginal cost pricing. B) setting price a o!e marginal cost. C) collusi!e price agreements among ri!al sellers. D) selling elow a!erage total cost. "() ,f 6ord 9otor Company and Aeneral 9otors were to merge' it would e an e#ample of a:

A) !ertical merger. B) hori2ontal merger. C) conglomerate merger. D) none of the a o!e. ")) ,f ?.S. Steel and Aeneral 9otors merged' this would e an e#ample of a: A) !ertical merger. B) hori2ontal merger. C) conglomerate merger. D) none of the a o!e. "+) A @erfindahl=@irschman ,nde# is calculated y: A) summing the amount of sales y the four largest firms and di!iding y total industry sales. B) di!iding the num er of firms wanting to merge y the total num er in the industry. C) summing the s1uares of the mar&et shares of each firm in the industry. D) summing the ad!ertising e#penditure of the firms that want to merge y total industry ad!ertising e#penditures. "3)

,f a natural monopoly regulatory commission set a price where marginal cost is e1ual to demand: A) the firm would earn monopoly profits. B) %conomic efficiency would not e achie!ed. C) the firm would incur a loss. D) the firm would rea& e!en. *e#er to i'ure 13+" #or the ,uestions be!o-+

6igure 1$.2 "7) The firm in figure 1$.2 wants to produce: A) L1. B) L2. C) L". D)

L$. $/) 4here the firm in figure 1$.2 wants to produce' the mar&et clearing price is: A) *1. B) *2. C) *". D) *$. $1) ,f the firm in figure 1$.2 produces what it wants' it will: A) ma&e a profit. B) suffer a loss. C) rea& e!en. D) face entry. $2) ,f the firm in figure 1$.2 is regulated to produce as much as possi le' it will: A) ma&e a profit. B) suffer a loss. C) rea& e!en.

D) face entry. $") %conomic efficiency re1uires that a natural monopoly>s price e: A) e1ual to a!erage total cost where it intersects demand. B) e1ual to marginal cost where it intersects demand. C) e1ual to a!erage !aria le cost where it intersects demand. D) e1ual to the price the natural monopolist wants. $$) The price strategy to regulate a natural monopoly to produce as much as possi le is to set price: A) e1ual to a!erage total cost where it intersects demand. B) e1ual to marginal cost where it intersects demand. C) e1ual to a!erage !aria le cost where it intersects demand. D) e1ual to the price the natural monopolist wants. ) ) )

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 16 0ricin' (trate')

1) ,f a firm charges different consumers different prices for the same good or ser!ice' it is engaging in: A)

odd pricing. B) cost=plus pricing. C) price discrimination. D) mar&up pricing. 2) ,f a firm charges a mem ership fee to gain admission to a store and then charges mem ers for e!ery item they uy' it is engaging in: A) odd pricing. B) cost=plus pricing. C) price discrimination. D) a two=part tariff. ") The de!elopment of information technology o!er the last twenty years has ena led firms to: A) gather information on customers> preferences. B) estimate uyers> elasticity of demand. C) rapidly ad0ust prices to increase profits. D) all of the a o!e. $)

A limit to firms charging different prices to different customers is: A) federal antitrust laws which prohi it e#cessi!e price discrimination. B) customer resentment a out eing ta&en in y price discrimination. C) low price uyers reselling the good to high price uyers. D) low price uyers switching to su stitutes. () The law of one price is: A) federal and state statutes that prohi it price discrimination. B) that all customers should pay the same price. C) that identical products should sell for the same price e!erywhere. D) go!ernment regulation of prices for all firms. )) 4hen you uy at a low price in one mar&et then sell at a higher price in another mar&et you are engaging in: A) odd pricing. B) ar itrage. C) an antitrust prohi ited practice. D) price discrimination. +)

,f your local national food store uys oranges at a low price in 6lorida and resells them to you at a higher price' then the food store>s re!enue minus costs is &nown as: A) ar itrage profits. B) transactions profits. C) pure profits. D) e#cess profits. 3) Buying at a low price in one mar&et and reselling at a higher price in another mar&et will: A) not generate any profit ecause of transportation costs. B) not generate any profit ecause of transactions costs. C) e!entually eliminate all of the price differences. D) e!entually eliminate most' ut not all' of the price differences. 7) The e#penses you encounter when you uy in one mar&et and sell in a distant mar&et are &nown as: A) production costs. B) fi#ed costs. C) transactions costs. D) sun& costs.

1/) The law of one price holds e#actly only if: A) antitrust laws are eing enforced. B) uyers ha!e complete information. C) transactions costs are 2ero. D) it is impossi le for uyers to resell the good. 11) A necessary condition for successful price discrimination is: A) no transactions costs. B) differences in the elasticities of demand for the product y different customer groups. C) selling in a perfectly competiti!e mar&et. D) uyer ignorance. 12) A necessary condition for successful price discrimination is: A) the firm must possess mar&et power. B) uyers are allowed to resell the product. C) 2ero transactions costs. D)

identical inelastic demand y all uyers. 1") A necessary condition for successful price discrimination is: A) perfect competition. B) a mar&et that can e segmented into different uyer groups. C) customers eing a le to resell the product. D) perfectly elastic demand. 1$) A type of mar&et structure that price discrimination is B;T found in is: A) perfect competition. B) monopolistic competition. C) oligopoly. D) monopoly. 1() The necessary condition for successful price discrimination that can e the most difficult one to fulfill is: A) the firm ha!ing mar&et power. B) stopping resale of the product from one uyer segment to another. C) uyers ha!ing different elasticities of demand for the product. D)

seller eing a le to segment the total mar&et. 1)) Among the types of firms who are a le to practice price discrimination are: A) mo!ie theaters. B) airlines. C) land=line telephone companies. D) all of the a o!e. 1+) The type of firms that are a le to practice price discrimination are: A) only perfectly competiti!e firms. B) firms that cannot accurately determine their customers> elasticity of demand for the product. C) firms that can &eep consumers from reselling a product. D) firms with perfectly elastic demands. 13) A firm that can effecti!ely price discriminate' will charge a higher price from the: A) customers who ha!e the relati!ely elastic demand for the product. B) customers who ha!e the relati!ely inelastic demand for the product. C) uyers who elong to the largest mar&et segment.

D) uyers that are mem ers of the smallest mar&et segment. 17) 6or a firm that can effecti!ely price discriminate' who will e charged the lower price5 A) customers who ha!e an elastic demand for the product B) customers who ha!e an inelastic demand for the product C) uyers that are mem ers of the largest mar&et segment D) uyers that are mem ers of the smallest mar&et segment 2/) Airlines that ha!e used computer economic models to determine a price each day for each seat are using: A) profit ma#imi2ation. B) odd pricing. C) two=part tariff. D) yield management. 21) Eield management and price discrimination ha!e ena led many firms to increase profits and at the same time: A) reduce the cost of production. B) capture some consumer surplus. C)

reduce transactions costs. D) increase total surplus. 22) ,f a firm could practice perfect price discrimination' it would: A) allow resale of its product. B) charge e!ery uyer a different price. C) charge a price ased on the 1uantity of a product ought. D) use odd pricing. 2") 4ith perfect price discrimination there is: A) no deadweight loss. B) no producer surplus. C) one single price. D) an increase in consumer surplus. 2$) Among the results of price discrimination is: A) larger profits B) smaller consumer surplus C)

a larger output. D) all of the a o!e. 2() Some high technology products li&e D-D players' electronic calculators' digital cameras' are introduced at a !ery high price ut soon the mar&et price starts falling ecause: A) production costs rises as output rises. B) early uyers of a new product ha!e a !ery inelastic demand while later uyers ha!e a more elastic demand. C) demand for high=tech products is !ery irratic. D) of sun& costs. 2)) ;dd pricing would e: A) selling gasoline for .1."(7 a gallon rather than .1.") a gallon. B) when the price of a good ends with something other than 2ero. C) setting a price 0ust elow .(/ li&e .$7.7(. D) all of the a o!e. 2+) ;dd pricing in the ?nited States resulted from: A) con!erting British goods from pounds to dollars. B)

guarding against employee theft. C) odd priced goods eing associated with high 1uality goods. D) all of the a o!e. 23) ;dd pricing continues today ecause: A) sellers elie!e that customers will uy a larger 1uantity with an odd price. B) it is a way to price discriminate. C) it is too difficult for sellers to reeducate uyers into accepting e!en prices. D) it lowers transactions costs. 27) 6irms use cost=plus ecause: A) it leads to profit ma#imi2ation. B) the percentage mar&up is intended to co!er all costs including those in a multi=product firm that are difficult to allocate to a particular good. C) it is necessary for price discrimination. D) all of the a o!e. "/) Cost=plus pricing is an o& way to determine the optimal price: A) when marginal and a!erage cost are roughly e1ual. B)

when fi#ed costs are high. C) when fi#ed costs !ary. D) when marginal costs are !ery different from a!erage costs. "1) ,f demand is ta&en into account' firms that use cost=plus pricing can ad0ust price y: A) lowering mar&ups on price elastic goods and raising mar&ups on price inelastic goods. B) letting sales fall ut hold the mar&up constant' if demand falls. C) raising mar&ups on price elastic goods and lowering mar&ups on price inelastic goods. D) letting sales rise ut hold the mar&up constant' if demand rises. "2) %!idence that competition and demand affect firms that use cost=plus pricing includes: A) when competition is strong' auto ma&ers will offer re ates. B) supermar&ets use lower mar&ups on price elastic goods. C) supermar&ets use higher mar&ups on price inelastic goods. D) all of the a o!e. "") A two=part tariff is: A) when a firm charges only two different prices for the same good.

B) when an importer has to pay a ta# at the nation>s orders' then a sales ta# when the good is sold. C) when a uyer pays an initial price for entrance to the mar&et and an additional fee for each unit of the product purchased. D) when a uyer must pay a down payment and monthly payments to uy a product li&e a car. "$) Compared to monopoly pricing' an optimal two=part tariff: A) reduces economic efficiency. B) eliminates the deadweight loss. C) e1uates marginal re!enue and a!erage re!enue. D) increases consumer surplus. "() A firm using a two=part tariff faces a tradeoff ecause: A) the only way to increase the first part price is to lower the second part price. B) profits decrease when this pricing scheme is used. C) consumer surplus increases while producer surplus decreases. D) uyers may shun the firm>s products ecause they do not understand the pricing. ")) 4ith an optimal two=part tariff: A)

consumer surplus e1uals producer surplus. B) all consumer surplus is transformed into profit. C) the firm earns a rea&e!en le!el of re!enue. D) the firm earns a profit. "+) *rice discrimination: A) turns some consumer surplus into producer surplus. B) is a method to increase profits. C) leads to a larger le!el of output than a one price monopoly would produce. D) all of the a o!e. *e#er to i'ure 16+1 #or the ,uestions be!o-+

6igure 1(.1 "3)

,n figure 1(.1 with perfect price discrimination' the firm will charge: A) *1. B) *2. C) *". D) all of the a o!e. "7) ,n figure 1(.1 with perfect price discrimination' consumer surplus is: A) the entire area under the demand cur!e. B) the area etween the demand cur!e and the marginal cost cur!e. C) the area under the a!erage total cost cur!e. D) 2ero. $/) A firm>s efforts to increase profit y price discrimination can e undermined y: A) ar itrage y uyers. B) consumer ignorance. C) differences in elasticity of demand. D) seller mar&et power.

$1) ,f' at the firm>s pro0ected sales le!el' marginal cost is .$/' a!erage cost is .(/ and the mar&up is "/ percent' then it>s selling price is: A) .$/. B) .)(. C) .(/. D) .(2. $2) ,f the firm>s selling price is .2// and the pro0ected sales amount of a!erage cost is .1(/' then the firm>s mar&up is: A) +( percent. B) ""."" percent. C) 2( percent. D) impossi le to determine with the information gi!en.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 17 The Markets #or <abor and Other actors o# 0roduction
1) 4ages determined in a mar&et economy are determined y: A) employers deciding how much they can afford to pay. B) the go!ernment comparing the !alue of !arious 0o s. C)

the interaction etween the demand for la or and the supply of la or. D) the court system deciding what are fair wages. 2) Demand in factor mar&ets is uni1ue ecause: A) demand for a factor of production is so difficult to determine. B) demand comes from wor&er producti!ity and the re!enue situation of the firm not tastes and preferences of consumers. C) demand is ased on the tastes and preferences of firms. D) demand is ased on the tastes and preferences of resource owners. ") 9arginal re!enue product O9:*) of la or for a competiti!e seller is: A) e1ual to the change in total product from hiring one more wor&er. B) e1ual to the marginal product of la or times the price of the product. C) e1ual to the price of the product times the 1uantity sold. D) e1ual to the marginal re!enue of the good times the price of the product. $) 9arginal re!enue product O9:*) for a competiti!e seller is e1ual to the marginal product of la or times the price of the product or: A) the selling price times the total product of la or. B)

the selling price of the product times the num er wor&ers hired. C) the change in total re!enue that results from hiring another wor&er. D) where marginal re!enue e1uals marginal cost. () 9arginal re!enue product O9:*): A) is the firm>s demand for la or. B) is the firms supply of la or. C) is the wor&ers supply of la or. D) is the wor&ers demand for la or. )) 9arginal re!enue product O9:*): A) tells a firm how much to produce at each price. B) tells a firm how many wor&ers to hire at each wage rate. C) tells wor&ers how much to wor& at each wage rate. D) tells wor&ers how much to produce at each wage rate. +) The primary reason a competiti!e firm>s demand for la or slopes downward is ecause: A) additional la or hired are not as efficient as the first ones hired. B)

in the short run' as more la or is hired' la or>s marginal product falls ecause of the law of diminishing returns. C) the e#tra re!enue the firm earns decreases as more output is produced. D) the firm>s demand cur!e is downward sloping. 3) The firm>s gain in profit from hiring another wor&er is: A) the marginal re!enue product of the e#tra wor&er. B) the difference etween marginal re!enue product and the wage of the wor&er. C) the e#tra output of the e#tra wor&er. D) the reduction in costs from hiring another wor&er. 7) ,f a competiti!e firm is paying a wage of .12 an hour and another wor&er would produce fi!e units of output in an hour which sells for ." each' then to ma#imi2e profits the firm should: A) not change its employment. B) lay off some wor&ers. C) hire an e#tra wor&er. D) there is not enough information to answer the 1uestion. 1/) ,f a competiti!e firm is paying a wage of .12 an hour and another wor&er would produce four units of output per hour' then to ma#imi2e profits the firm should: A)

not change its employment. B) hire the e#tra wor&er. C) layoff some wor&ers. D) not enough information is gi!en to answer the 1uestion. 11) ,f a competiti!e firm is paying a wage of .12 an hour and the last wor&er hired produced three units of output in an hour that sells for ." each' then to ma#imi2e profits the firm should: A) not change its employment. B) lay off some wor&ers. C) hire another wor&er. D) there is not enough information to answer the 1uestion. 12) ,f a competiti!e firm is paying a wage of .12 an hour and the last wor&er hired produced four units of output in an hour that sells for ." each' then to ma#imi2e profits the firm should: A) not change its employment. B) lay off some wor&ers. C) hire another wor&er. D) there is not enough information to answer the 1uestion. 1") ,f 9* stands for marginal product' * stands for price' and 4 stands for wage' then the e1uation that represents the

condition where a competiti!e firm would hire another wor&er is: A) * D 9* C 4. B) * D 9* P 4. C) * D 9* Q 4. D) * D 4 Q 9*. 1$) ,f 9* stands for marginal product' * stands for price' and 4 stands for wage' then the e1uation that represents a situation where a competiti!e firm is ma#imi2ing profits in hiring la or is: A) * D 9* C 4. B) * D 9* Q 4. C) * D 9* P 4. D) 9* D 4 C *. 1() ,f 9* stands for marginal product' * stands for price' and 4 stands for wage'then the e1uation that represents a situation where a competiti!e firm should lay off some wor&ers to ma#imi2e profits is: A) * D 9* C 4. B) * D 9* Q 4. C) * D 9* P 4. D) *N9* C 4.

1)) An increase in the wage rate causes: A) an increase in a firm>s demand for la or. B) a decrease in a firm>s demand for la or. C) a decrease in the 1uantity of la or demanded. D) an increase in la or>s marginal producti!ity. 1+) An increase in a competiti!e firm>s demand for la or could e caused y: A) a decrease in the mar&et wage rate. B) an increase in the mar&et demand for the firm>s product. C) a decrease in the marginal product of wor&ers. D) an increase in the price of capital that is used y la or in production. 13) An increase in a competiti!e firm>s demand for la or could e caused y: A) an increase in the price of the firm>s product. B) a technological impro!ement. C) an increase in human capital in the la or force. D)

all of the a o!e. 17) ,f there is an impro!ement in technology' then the: A) 1uantity demanded of la or will decrease. B) demand for la or will increase. C) demand for la or will decrease. D) 1uantity demanded of la or will increase. 2/) The su stitution effect of a wage increase is: A) ta&ing more leisure and wor&ing less ecause income has increased. B) wor&ing more and ta&ing less leisure ecause of leisure>s higher opportunity cost. C) ta&ing less leisure and wor&ing more ecause income has increase. D) wor&ing less and ta&ing more leisure ecause income had increased. 21) The la or supply for an industry would increase if: A) immigration in the area increases. B) the percentage of the population of ages 1) to )( increases. C) employment alternati!es a!aila le to wor&ers increase. D)

all of the a o!e. 22) ?nemployment rates are higher in %uropean economies than in the ?.S. ecause: A) people in %urope do not ha!e as strong a wor& ethic as Americans do. B) unemployment enefits are more generous in %urope than in the ?.S. C) wor&ers in %urope are less producti!e than wor&ers in the ?.S. D) %uropean industries pay a lower wage rate than industries in the ?.S. 2") <a or demand for the economy increases' when: A) wages ha!e decreased. B) wages ha!e increased. C) la or is more producti!e. D) the supply of la or has fallen. *e#er to i'ure 17+1 #or the ,uestions be!o-+

6igure 1).1 2$) ,f la or demand rises in figure 1).1' then: A) the e1uili rium wage rate and e1uili rium 1uantity of la or rise. B) the e1uili rium wage rate and e1uili rium 1uantity of la or fall. C) the e1uili rium wage rate falls and e1uili rium 1uantity of la or rises. D) the e1uili rium wage rate rises and e1uili rium 1uantity of la or falls. 2() ,f la or supply rises in figure 1).1' then: A) the e1uili rium wage rate and e1uili rium 1uantity of la or rise. B) the e1uili rium wage rate and e1uili rium 1uantity of la or fall. C) the e1uili rium wage rate falls and e1uili rium 1uantity of la or rises. D) the e1uili rium wage rate rises and e1uili rium 1uantity of la or falls.

2)) ,f la or supply and la or demand fall in figure 1).1' then: A) the e1uili rium wage rate rises. B) the e1uili rium wage rate falls. C) the e1uili rium 1uantity of la or rises. D) the e1uili rium 1uantity of la or falls. 2+) ,f la or supply falls and la or demand rises in figure 1).1' then: A) the e1uili rium wage rate rises. B) the e1uili rium wage rate falls. C) the e1uili rium 1uantity of la or rises. D) the e1uili rium 1uantity of la or falls. 23) The producti!ity of la or increases' when: A) the le!el of education among wor&ers rises. B) the supply of capital e1uipment increases. C) there is technological progress. D)

all of the a o!e. 27) The a!erage wage rate in the la or mar&et rises: A) if la or demand and la or supply are increasing at the same rate. B) if la or supply and la or demand are falling. C) if la or demand and la or supply are oth increasing. D) if la or demand increases more than la or supply increases. "/) Different wages etween occupations can e e#plained y: A) some occupations eing more important than others. B) relati!e differences etween la or demand and supply. C) the power of different employers. D) all of the a o!e. "1) 4age rates depend on: A) the product>s total !alue B) the product>s a!erage !alue C) the product>s marginal !alue D)

none of the a o!e. "2) Some sports stars earn !ery high le!els of income relati!e to other occupations and o!er time the difference has een increasing ecause: A) the supply of sports stars has decreased. B) the supply of sports stars has increased due to college athletic programs. C) technological ad!ances such as ca le tele!isions has increased the demand for sports entertainment. D) the supply of sports teams had decreased. "") Compensating differentials are: A) nonmonetary enefits from eing employed such as health care. B) wages paid to wor&ers where the supply of la or is great relati!e to demand. C) higher wages that compensate wor&ers for unpleasant aspects of a 0o . D) higher wages that compensate the more e#perienced wor&ers in a field. "$) A wor&er might earn a compensating wage differential for: A) effort. B) accepting ris&. C)

long hours. D) none of the a o!e. "() ,f national laws protecting the health and safety of wor&ers completely eliminate any and all ris&' then: A) wor&ers in ris&y occupations ecome etter off. B) compensating wage differentials disappear and wor&ers in ris&y occupations may e worse off. C) compensating differentials would grow ecause wor&ers could not e compensated y eing gi!en lower ris& 0o s. D) more people would e employed. ")) %conomic discrimination is when an employer: A) pays wor&ers the lowest wage they can. B) pays wor&ers different wages on the asis of an irrele!ant characteristic of the wor&er. C) pays wor&ers who are not as producti!e as other wor&ers lower wages. D) pays wor&ers compensating wage differentials. "+) %conomic discrimination: A) greatly distorts earnings of women and racial minorities. B) y itself can e#plain all wage rate differentials. C)

and its impact has een !ery difficult to measure. D) is greater today than in the past. "3) An employer that economically discriminates: A) has lower costs of production. B) can hire producti!e wor&ers at a lower wage. C) is restricting the supply of wor&ers it will hire and causing the employer to pay a higher wage. D) ma&es a higher profit. "7) 4or&er discrimination is when: A) wor&ers will not ta&e ris&y 0o s. B) wor&ers refuse to wor& with a person of a different race. C) customers will not uy the product produced y a racially di!erse wor&force. D) employers pay different employees different wages ased on race. $/) That some talented people may not enter an occupation ecause they ha!e heard that people with their personal characteristics do not get hired in that occupation is &nown as: A) economic discrimination. B) a compensating difference.

C) a negati!e feed ac& loop. D) wor&er discrimination. $1) The primary purpose of la or unions is: A) training wor&ers to e safer. B) ma&ing sure all mem ers earn identical incomes. C) argaining with employers a out wages and wor&ing conditions. D) endorsing candidates and donating money to them. $2) ,f a firm is the only hirer of a factor of production' it is &nown as: A) a monopoly. B) a competitor. C) a monopsony. D) an economically discriminating firm.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 18 The Economics o# 1n#ormation

1) 4hen one party to an economic transaction has less information than the other party it is &nown as: A)

moral ha2ard. B) economic irrationality. C) asymmetric information. D) ad!erse selection. 2) 4hen people who uy insurance change their eha!ior ecause they are protected from loss y the insurance' the insurance mar&et e#hi its: A) moral ha2ard. B) ad!erse selection. C) asymmetric information. D) economic irrationality. ") 4hen an insurance company attracts uyers who &now they are more li&ely ma&e a claim on the policy than the insurance company &nows' the insurance company is suffering: A) moral ha2ard. B) ad!erse selection. C) asymmetric information. D) economic irrationality. $)

The party with the most information a out firms selling stoc&s and onds is: A) stoc& and ond ro&ers who earn a li!ing y recommending financial assets. B) the firm selling the stoc&s and onds. C) a person who may uy the stoc&s and onds. D) e!ery party in the financial mar&et has access to the same le!el of information. () Buyers and sellers ha!e complete &nowledge a out the product eing ought and sold in: A) the mar&et for the right to drill for oil on go!ernment land. B) the telecommunications mar&et. C) the mar&et for used automo iles. D) none of the a o!e. )) ,n a used car mar&et where half the cars are good and half are lemons' rational uyers will ma&e ids half=way etween what they would pay for a good car and a lemon car and sellers will agree to sell mostly the lemons at that price resulting due to: A) moral ha2ard. B) ad!erse selection. C) an efficient mar&et. D) economic irrationality.

+) ,n a mar&et situation with asymmetric information' the participant with the most &nowledge is a le to agree to a transaction that enefits them and causes the seller to not enefit due to: A) moral ha2ard. B) ad!erse selection. C) economically irrational eha!ior. D) gains from trade. 3) Ad!erse selection can e reduced in the used car mar&et y: A) used car dealers offering a warranty on the cars sold. B) go!ernment regulation of the price for used cars. C) uyers re!ealing how much they want cars. D) all of the a o!e. 7) Ad!erse selection can e reduced in the used car mar&et y: A) used car dealers uilding a reputation for selling relia le used cars. B) go!ernment regulation of the price for used cars. C) uyers re!ealing how much they want cars. D)

all of the a o!e. 1/) The pro lem of ad!erse selection can e reduced in the health insurance mar&et y: A) insurance companies collecting as much information as they can a out people applying for insurance. B) insurance companies carrying out their own medical e#aminations of people applying for insurance. C) insurance companies re1uiring potential customers to su mit their medical histories. D) all of the a o!e. 11) ,f a state re1uires all dri!ers to uy auto insurance' insurance companies a!oid: A) asymmetric information. B) moral ha2ard. C) ad!erse selection. D) sun& costs. 12) The cost of group health insurance is lower than if an indi!idual uys a policy on their own ecause: A) the pro lem of ad!erse selection on the part of uyers is reduced. B) moral ha2ard costs of a group tend to mo!e to a low a!erage. C) it is easier for the company to deny claims from a large group.

D) insuring a group eliminates the pro lem of uyers ha!ing more information than the seller of insurance. 1") ,ndi!iduals uy a policy that promises to pay them a certain amount of money per time period as long as they are ali!e to: A) protect themsel!es from running out of money efore they die. B) e a le to 1uit wor&ing efore retirement age. C) a!oid ta#es. D) a!oid sun& costs. 1$) Social Security in the ?.S. is li&e: A) insurance premiums. B) asymmetric information. C) an annuity. D) moral ha2ard. 1() ,f wor&ers are allowed to di!ert some of their Social Security ta#es into purchasing annuities' then there could e: A) a moral ha2ard pro lem. B) an ad!erse selection pro lem. C)

a co=payments pro lem. D) a sun& cost pro lem. 1)) ,f a fire insurance company re1uires firms uying fire insurance to install automatic sprin&ler systems' the insurance company is trying to reduce: A) ad!erse selection pro lems. B) moral ha2ard pro lems. C) sun& costs. D) asymmetric information. 1+) @ealth insurance companies impose deducti les on policies and co=payments on claims: A) to increase sales. B) to reduce moral ha2ard pro lems. C) to reduces sun& costs. D) to increase prices. 13) The pro lem that can de!elop at the time of an insurance policy transaction is: A) ad!erse selection. B)

the uyer ha!ing more information than the seller. C) moral ha2ard. D) the seller ha!ing more information than the uyer. 17) The pro lem that can de!elop after an insurance policy transaction is: A) the seller ha!ing more information than the uyer. B) asymmetric information. C) moral ha2ard. D) the uyer ha!ing more information than the seller. 2/) The pro lem that e#ists efore an insurance policy transaction is: A) the seller ha!ing more information than the uyer. B) asymmetric information. C) moral ha2ard. D) the uyer ha!ing more information than the seller. 21) ,n mar&ets with assymetic information: A) moral ha2ard causes ad!erse selection then it causes asymmetric information. B)

ad!erse selection causes moral ha2ard then it causes asymmetric information. C) asymmetric information causes moral ha2ard then it causes ad!erse selection. D) asymmetric information causes ad!erse selection then it causes moral ha2ard. 22) The &ey reason only large corporations are a le to sell stoc&s and onds in the financial mar&ets is: A) the high cost to sell stoc&s and onds. B) asymmetric information. C) sun& costs. D) perfect information. 2") The moral ha2ard in the financial mar&et is: A) only poorly=run firms need to raise funds y selling stoc&s and onds. B) &nowing the difference etween well=run and poorly=run firms. C) once the firm raises the funds' it can spend the money in ways that reduce profits. D) uyers of stoc&s and onds may not monitor the firm>s management. 2$) The Securities and %#change Commission OS%C) re1uires: A) uyers pro!ide the mar&et information on why they want to uy a ond or share of stoc&. B)

potential in!estors must e pro!ided with a prospectus containing all rele!ant financial information a out the firm. C) stoc& and ond prices must e appro!ed y the S%C. D) all of the a o!e. 2() The S%C>s regulations for the financial mar&ets: A) increase the amount of information a!aila le to potential uyers of stoc&s or onds. B) increase the amount of information a!aila le to firms who might issue stoc&s or onds. C) decrease the amount of information a!aila le to potential uyers of stoc&s or onds. D) decrease the amount of information a!aila le to firms who might issue stoc&s or onds. 2)) The term for the conflict etween the interests of shareholders and the interests of top management is: A) asymmetric information. B) moral ha2ard. C) principal=agent pro lem. D) ad!erse selection. 2+) A principal=agent pro lem that might e#ist etween management and wor&ers is that: A) once hired' wor&ers may shir& their duties and not wor& hard.

B) if management and wor&ers do not own shares in the company' their goals will differ from those of the owners. C) after agreeing to wor& for a gi!en wage' wor&ers may not recei!e it from management. D) all of the a o!e. 23) 9anagement can gi!e wor&ers incenti!e to wor& harder y: A) ha!ing a profit sharing system among employees. B) ha!ing a seniority system. C) paying an efficiency wage. D) all of the a o!e. 27) An efficiency wage is: A) a wage paid that is e1ual to the mar&et>s e1uili rium wage. B) a wage paid that is less than the mar&et>s e1uili rium wage. C) a wage paid that is a o!e the mar&et>s e1uili rium wage. D) the lowest wage that the firm can hire wor&ers. "/) A seniority system is: A)

where the youngest wor&er is paid the most ecause they wor& harder. B) where wor&ers who ha!e een with the firm longest earn higher wages and get more enefits. C) where wage paid is e1ual to the mar&et>s e1uili rium wage only for senior wor&ers. D) where wage paid is less than the mar&et>s e1uili rium wage for younger wor&ers. "1) An e#ample of a moral ha2ard pro lem in la or mar&ets is: A) employees may steal from the firm. B) wor&ers may fa&e in0uries to get medical awards. C) wor&ers may put forth as little effort as possi le on the 0o . D) wor&ers may wor& too hard and cost other potential wor&ers 0o s. "2) The winner>s curse is caused y: A) information getting out that the winner has won something !alua le. B) the winner o!erestimating the !alue of the thing eing id on. C) random pro a ility. D) all of the a o!e. "") The winner>s curse is caused y: A)

neither side in an auction ha!ing full information a out the thing up for auction. B) information getting out that one has won something !alua le. C) random pro a ility. D) all of the a o!e. "$) The o!erall outcome of the winner>s curse is: A) the winner of an auction is worse off than the losers. B) the winner of an auction is etter off than the losers. C) on a!erage the winner of an auction wins what the losers of an auction lose. D) the winner and loser of an auction are e1ually well off. "() The winner>s curse applies to auctions where: A) neither the seller nor uyer has complete information. B) oth the seller and uyer ha!e complete information. C) oth the seller and uyer ha!e perfect information. D) neither the seller nor uy want the item. ")) Asymmetric information is not a pro lem in:

A) uying a used car. B) selling health or life insurance. C) uying a product from a perfectly competiti!e seller. D) getting married. "+) ,f after Foe has een gi!en a year to li!e ecause of a terminal disease' he uys life insurance' then there is: A) a moral ha2ard. B) a winner>s curse. C) an ad!erse selection. D) complete information.

Microeconomics - Testbank 1 (Hubbard/O'Brien) Chapter 19 The Ta5 ()stem and the 2istribution o# 1ncome
1) Among the roles the go!ernment plays in helping a mar&et system wor& efficiently is: A) enforcing contracts etween pri!ate indi!iduals. B) pro!iding pri!ate property rights' independent courts' a financial system' and educational' transportation' and communication systems. C) producing pu lic goods that pri!ate firms will not produce. D)

all of the a o!e. 2) The largest source of re!enue for the ?.S. federal go!ernment is from: A) tariffs collected on imported goods. B) property ta#es imposed on pri!ate property. C) sales ta#es on items ought for consumption. D) income ta#es on wages and salaries of households and the profits of firms. ") At the ?S state and local le!el' the largest re!enue source is: A) state income ta#es on wages and salaries and corporate profits. B) property ta# on real estate within the state. C) general sales and e#cise ta#es on goods sold within the state. D) grants from the federal go!ernment. $) ,f' as your ta#a le income decreases' you pay a smaller percentage of ta#a le income in ta#es' the ta# is: A) regressi!e. B) proportional. C) progressi!e.

D) unfair. () ,f' as your ta#a le income decreases' you pay a larger percentage of ta#a le income in ta#es' the ta# is: A) regressi!e. B) proportional. C) progressi!e. D) unfair. )) ,f' as your ta#a le income decreases' you pay a constant percentage of ta#a le income in ta#es' the ta# is: A) regressi!e. B) proportional. C) progressi!e. D) random. +) A personal e#emption refers to: A) the ta# rate that applies to a particular ta# rac&et. B) the ta# rac&et that represents !ery asic li!ing e#penses. C)

an income amount that can e su tracted from income that represents asic li!ing e#penses. D) e#penditure amounts the are allowed to e su tracted from ta#a le income. 3) The largest percentage of ?.S. federal income ta#es are paid y: A) lowest income ta#payers. B) middle income ta#payers. C) highest income ta#payers. D) All ta#payers pay the same percent of federal income ta#es. 7) ?nder the ?.S. federal income ta# system: A) all ta#payers pay the same percentage of income to the federal go!ernment. B) the lowest income earners pay the highest percentage of income to the federal go!ernment. C) the middle income earners pay the highest percentage of income to the federal go!ernment. D) the highest income earners pay the highest percentage of income to the federal go!ernment. 1/) A marginal ta# rate is: A) total ta#a le income di!ided y ta#es paid. B) ta#es paid di!ided y total ta#a le income. C)

change in ta#es paid di!ided y the change in total ta#a le income. D) change in ta#a le income di!ided y change in ta#es paid. 11) ,f the marginal ta# rate is greater than the a!erage ta# rate as ta#a le income increases' the ta# structure is: A) regressi!e. B) proportional. C) progressi!e. D) unfair. 12) ,f the marginal ta# rate is less than the a!erage ta# rate as ta#a le income increases' the ta# structure is: A) regressi!e. B) proportional. C) progressi!e. D) unfair. 1") ,f the marginal ta# rate is e1ual to the a!erage ta# rate as ta#a le income increases' then the ta# structure is: A) regressi!e. B) proportional.

C) progressi!e. D) unfair. 1$) The corporate income ta#: A) is primarily paid y low earning corporations. B) is the first ta# of dou le ta#ation of the profits of corporations. C) is regressi!e. D) all of the a o!e. *e#er to i'ure 19+1 #or the ,uestions be!o-+

6igure 13.1 1() ,n figure 13.1' the sales ta# re!enue of the go!ernment is: A) BJC. B)

6JA. C) %J@. D) BJCJ6JA. 1)) ,n figure 13.1' the part of the ta# paid y consumers is: A) BJC. B) 6JA. C) %J@. D) BJCJ6JA. 1+) ,n figure 13.1' the part of the ta# paid y the producers is: A) BJC. B) 6JA. C) %J@. D) BJCJ6JA. 13) ,n figure 13.1' the e#cess urden of the ta# is: A) BJC.

B) 6JA. C) %J@. D) BJCJ6JA. 17) The a ility to pay principle of ta#ation implies that: A) those who earn the most should e the ones who pay more ta#es. B) !ertical e1uity occurs when high income people pay relati!ely more in ta#es. C) progressi!e ta#es are more e1uita le than regressi!e ta#es. D) all of the a o!e. 2/) The elief that two ta#payers in the same economic circumstances should pay the same le!el of ta#es is &nown as the: A) a ility=to=pay principle. B) !ertical e1uity principle. C) hori2ontal e1uity principle. D) enefits=recei!ed principle. 21) Aasoline e#cise ta#es that are typically used for highway construction and maintenance are consistent with the principle of ta#ation &nown as the:

A) a ility=to=pay principle. B) hori2ontal=e1uity principle. C) !ertical e1uity principle. D) enefits=recei!ed principle. 22) A sales ta# on a product orne to a greater proportion y sellers than y uyers when: A) demand is more price elastic than supply is. B) demand is less price elastic than supply is. C) demand>s price elasticity is e1ual to that of supply. D) demand has any elasticity. 2") 8Sin ta#es8 are intended to: A) increase the amount of the producted supplied. B) generate money to su sidi2e production of the products ta#ed. C) reduce the 1uantity demanded. D) generate funds to aid in medical care of those harmed y the product. 2$)

The po!erty line is: A) an ar itrary le!el of income chosen y the *resident. B) the le!el of income e1ual to triple the income needed to purchase ade1uate nutrition. C) the income le!el elow which a person is e#empt from ta#es. D) none of the a o!e. 2() The characteristics of people with high incomes include: A) eing more producti!e than a!erage. B) owning greater than a!erage amounts of capital. C) ha!ing etter than a!erage luc&. D) all of the a o!e. 2)) The income distri ution in an economy can e illustrated graphically with: A) a Aini cur!e. B) a <oren2 cur!e. C) a pie chart. D) a ar chart.

2+) ,f the actual <oren2 cur!e is a $( degree line from the lower left corner to the upper right' then the economy has: A) a solute income ine1uality. B) a solute income e1uality. C) an une1ual distri ution of income. D) an unfair distri ution of income. 23) ,f the actual <oren2 cur!e runs along the lower hori2ontal a#is and the right side !ertical line' the economy has: A) a solute income ine1uality. B) a solute income e1uality. C) a moderately une1ual distri ution of income. D) none of the a o!e. 27) The <oren2 cur!e for most actual mar&et economies are: A) a straight line from the lower left corner to the upper right corner. B) a right angle line from the lower left corner up to the upper right corner. C) a cur!ed line from the lower left corner up to the upper right corner. D)

none of the a o!e. "/) ,f the Aini coefficient is e1ual to one' then: A) there is a solute e1uality of incomes within the economy. B) there is a solute ine1uality of incomes within the economy. C) there is moderate ine1uality of incomes within the economy. D) there is moderate e1uality of incomes within the economy. "1) ,f the Aini coefficient is e1ual to 2ero' then: A) there is a solute e1uality of incomes within the economy. B) there is a solute ine1uality of incomes within the economy. C) there is moderate e1uality of incomes within the economy. D) there is moderate ine1uality of incomes within the economy. "2) ,f the Aini coefficient is e1ual to /.)(' then: A) there is a solute e1uality of incomes within the economy. B) there is a solute ine1uality of incomes within the economy. C) there is moderate e1uality of incomes within the economy. D)

there is moderate ine1uality of incomes within the economy. "") ,f the Aini coefficient is e1ual to /.23' then: A) there is a solute e1uality of incomes within the economy. B) there is a solute ine1uality of incomes within the economy. C) there is moderate e1uality of incomes within the economy. D) there is moderate ine1uality of incomes within the economy. "$) The type of ta# that would help reduce income ine1uality is: A) a regressi!e ta#. B) a proportional ta#. C) a progressi!e ta#. D) an e#cess urden ta#. "() :ecent reductions in world po!erty ha!e een due to: A) foreign aid from high=income nations li&e the ?.S. B) world increase in the price of crude oil. C) economic growth in Asia and <atin America. D)

more countries &eeping out imports.